In this digital age, many of us are aware of the benefits that come from having an emergency fund but we simply ignore it because we feel it’s too difficult. Taking out emergency funds can indeed be hard but the benefits are way more than this one time feeling of sadness.
What is an Emergency Fund?
An emergency fund is a personal budget set aside as a financial safety net for future mishaps or unexpected expenses.
The pandemic taught us the importance of saving for emergencies as it brought some really hard financial situations for many.
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Financial experts suggest having an emergency fund of at least three to six months of living expenses. The reason for this is to prevent you from going into debt, which serves as a form of fallback if you lose your job. Asides from these, there are many more reasons why you should create an emergency fund account, They include:
Your emergency fund is a lifesaver when it comes to debt payment. With an emergency fund account, you don’t need to borrow from friends and relatives when a financial bump occurs. It helps you cover expenses on items that are not in your budget without going through the stress of borrowing, this way reducing your debts and helps you to pay them off quickly.
2. Balance Your Income
You should consider an emergency account when you have a single source of income. The emergency fund serves as a second means of income and supports the first. Although in this regard, the fund must be substantial enough to help you get through sudden job loss or illness. It is advisable if you are a one-income family or a single individual to have a year’s worth of expenses in your emergency fund account.
3. Medical Issues
A serious medical condition means more routine tests and days off from work. All of these can have a serious effect on your main income as you may not receive payment on these days.
In this case, an emergency fund can help you out with these medical bills and make your work and dealing with medical issues easier.
4. Goals / Commitment
One of the best ways to quickly achieve a goal is having emergency funds. If you have plans of building a house or buying a car, your emergency funds will stop you from messing with your normal savings and borrowing from friends. It helps you to move forward with your goals and at the same time take care of your savings.
5. Home Repairs
Think of a situation where you come home from work to a damaged toilet or a broken pipe. The sudden expenses would not only disrupt your schedule, it could also affect your budget. The best way to avoid this is to create an emergency fund.