Emergency funds are considered a necessity as they relate to financial security, since they can provide an individual or family with financial resources which can be resorted to and depended upon when an emergency arises. Such an emergency may be illness which could result in the burden of having to pay huge medical bills; or other emergencies might be unexpected home or major auto repair.
When there is no emergency fund, it will often lead to incurring debt on your credit card which could take several years to repay with interest that would greatly increase your cost. On the other hand, you can create a modest emergency fund by putting an extra thirty to fifty dollars every month in an individual savings account and be secured with what emergency the future may bring. To be true to this fund, it is recommended that you treat the emergency fund as an additional bill by paying it punctually each month.
Yes, you can and should budget and allocate the extra money for emergency fund, as this is very significant when thinking about your financial future. Here, the goal is to create savings from budgeting your income; the emergency savings should ideally be equal to at least three months your living expenditures. What’s important is that you should steadily put a certain amount of money aside, and only use it for real emergencies.
Unlike an investment, the success of an invidual’s long-term savings fund does not really depend on the amount of return or interests but on placing a fixed amount of money away consistently and steadily so as to have immediate access to it at all times.
Despite the financial status of the individual or family, the first requirement in the process of constructing an emergency fund is knowing where the available money is being consumed or spent on a day-to-day basis. Once this determination is made, then it will be easy make decisions regarding where to trim down expenses. In other words, budget.
Budgeting is putting or setting aside money for anticipated and unanticipated future use. It is here that families, businesses and governments set up goals on how and where to use available funds, except that some governments run deficits on which to base their budgets. Most families however, should not emulate this type of budgeting since setting up an emergency fund is a much simpler undertaking.
Checking, savings, money market accounts and “certificates of deposits”, are great places to keep the family’s cash that might be needed on short notice; but make sure not to lock yourself into any long term CDs or other such financial instruments since they could cost you money in the form of penalties if you attempt to take your cash out prematurely.
The amount saved from budgeting can either go to your savings goal, emergency fund or both. Money saved from budgeting financial expenses could be utilized by saving half of it to your savings account and half of it for emergencies. This way, you achieve your goals in savings and at the same time put in funds for emergency use. It’s really your choice.
