Why You Need An Emergency Fund?
If I could describe life in one word, I’d say that it’s unexpected. Sure, some of our predictions may turn into reality, but nothing is ever guaranteed. That’s why you need an emergency fund.
What is it?
An emergency fund is exactly what it sounds like, an instant amount of cash that you’ve saved over time in case of an emergency. I am not saying we’re heading into a recession, but experts do! An emergency fund will come in handy when life throws a curveball at you. Whether it's; medical expenses, home or car repairs, loss of income, or any unavoidable financial hurdle.
What it’s not?
Even though they could be easily confused, an emergency fund doesn’t have the same purpose as a savings account. That means they shouldn’t overlap. Your emergency fund should only be used for urgent, inescapable matters. So, you shouldn’t use it for a last-minute trip to Italy, or to buy a new car, and certainly not for an “emergency shopping situation”.
How to start?
Well, it’s very easy, actually! You just need to set aside any amount of your income, preferably in a separate account from your day-to-day account. That way, you won’t be tempted to dip in it.
It’s recommended that your emergency fund should at least cover three-to-six months of expenses, but it’s all relative depending on your current financial situation. One thing to consider when starting an emergency fund is that you need to work on settling your debts at the same time. Not paying for your short-term debts with high interest rates would only result in accumulative debt.
Benefits:
1. Mental Health Relief:
Having a safety net will positively affect your mental well-being. The stress and fear-mongering of the future, no more! You’ll be already one step ahead of whatever comes your way.
2. Control your expenses:
When you actually start an emergency fund, you’ll have to cut back unnecessary or luxurious expenses. So instead of buying your coffee every morning, you could make it a few times a week! It will also hold you back from getting into the habit of emotional spending.
3. Break from work:
No matter how much you love your job (if you’re one of these people!), you’ll love to take a break! Not that one-week nonsense, but like a full three months, maybe. The emergency fund will allow you to take that step. Whether you decide to quit your toxic job or just destress yourself for a while!
It’s never too late to start an emergency fund. Whether you’re still at college, just graduated, or well into your career. Later is better than never and your future self will thank you later!