Have you ever had one of those days where everything seems to go wrong? You get ready to go to work and the car won’t start even though it was moving just fine when you parked it last night. Now, you have to find alternative means to get to the office.
Your daughter wakes up unwell, so she has to be taken to hospital.
Your credit card payment is due that same day.
There’s a tax bill in the mail that has to be paid today. Somehow, someone forgot to send it earlier.
Even seemingly small things can destabilize you when they happen unexpectedly. In the scenario above, all those incidences occur simultaneously by a sick twist of fate, and they all require money. It would not be a problem if you had the money, but do you?
An emergency fund will help you get through such tough times with ease. Think of it as your insurance against unexpected money demands.
Many people don’t have an emergency fund in place. Others put aside some little money with the promise to keep adding more until it became well-funded, but stop doing so after a while. If you’re yet to build an emergency fund, the points below will show you why it’s important to do so now.
Benefits of having an Emergency Fund
You can use funds from an emergency fund to clear unexpected expenses and bills.
Use the funds to pay for emergencies.
When someone in the family falls sick and requires immediate medical care, you may use the money in your emergency fund to pay for their treatment. The same applies to incidents where you have to rent a car, repair something around the home, or hire a babysitter. Should a member of your family fall ill and require homecare for a while, you can easily pay for their care with cash from the emergency fund.
It helps you form a habit of saving.
Saving does not come easy for many of us. It takes commitment and selflessness to consistently put aside money. When you establish a habit of putting money into your emergency fund, no matter how small, it motivates you to take it a notch higher by saving towards something else.
The brain plays tricks on us, showing us how hard it would be to survive on whatever money remains if we set some savings aside.when we o survive on atter how small, it But if we resist this train of thought and go ahead and save the money, we’re psychologically strengthened to keep doing it.
You stop being a bother to friends and family.
If you’ve had to borrow money from family and friends, which we all have, you know how uncomfortable it can get when you keep going to the same people time and again for help. They may never say it out loud, but you know they’re wondering why you can never get your finances in order.
Give everyone a break and sort future expenses with an emergency fund.
It will help you avoid exorbitant loan rates.
Perhaps you’ve had to take out a short-term loan to cater to expenses that cropped up out of nowhere. The only thing that’s worse than the resultant higher monthly financial obligation is the high interest rate you have to pay.
With an emergency fund in place, you don’t have to ever take out a loan, unless it was for a major commitment.
It teaches you to live within your means.
Financial experts, life coaches, and our parents drill this into our heads over and over, yet it’s an aspiration that stays out of reach for many of us. Easy access to loans, salary advances and credit cards all make it easy to spend more than we need to.
When you stay focused on putting money in your emergency fund, it soon becomes clear that you can spend less on your monthly expenses.
It teaches you to become frugal.
A lot of discipline goes into making sustained deposits into your emergency fund. As you slowly cultivate this same discipline, it helps you unlearn some poor financial habits. You start spending on things and services, not because you can afford them or want to, but because they are necessary for your day-to-day living.
That locks out a lot of things we spend on without second thoughts.
Less stress to deal with.
Financial challenges cause lots of stress and anxiety. Knowing that you have sufficient cash safely stored for a rainy day takes away a lot of this stress. It’s not just good for your emotional health, but enhances your overall wellbeing.
How much should you have in your Emergency Fund?
Financial experts encourage you to have enough money to sustain you for three to six months should your current income be cut off. To come to this figure, determine how much money you need to survive in a month. Multiply this by three, four, five or six months. Then work towards saving this amount.
It’s perfectly okay to have more than the six-month total of expenses in the emergency fund. However, if the amount accumulates to really high amounts, you can consider investing some of it, so you can make some earnings.
More Tips on Creating an Emergency Fund
The hardest part about having an emergency fund is starting one. Why don’t you put a nominal amount of money in your emergency savings account to get motivated? From there, it’ll get easier. Here are more tips to help you:
Tip #1: If your income is hardly enough to get you through the month, start a side hustle or pick a second job. You’ll have some extra money coming in, and you can put part of it in your emergency fund.
Tip #2: Do it with a friend for motivation. This friend should be someone who doesn’t shy away from dishing out tough love when you fall of the bandwagon.
Tip #3: Get a mentor for accountability. Or someone you respect enough to not want to disappoint by falling behind on your emergency savings.
Important: Ensure that your emergency fund is in an account that you can access quickly.