Emergency financial situations can happen to anybody and any financial arrangement exercise is not ideal without planning for such occasions˳ The whole idea of having an emergency fund is to offer a cushion against any unexpected expense˳
This will ensure it does not have any negative impact on your financial condition and does not rip off the whole financial security˳
There are many circumstances which can cause a financial emergency such as a sudden illness, accident, medical emergencies, emergency house repairs, loss of a job, emergency car repairs and much more˳
The major reason for having an emergency fund is very clear because when a person falls into an emergency financial situation, they will have to break their savings or make a compromise to get the needed money˳
It’s not rare to find people who just take out their credit card and swipe it for hard cash˳ Opposing popular opinions, credit cards are the worst way to fund any financial emergency˳ The fastest way to get thousands of dollars its to get a car title loan it is not a long-term solution but a short-term solution˳
In a circumstance where you’ve taken a cash advance with your credit card to get the needed money, the credit card company will charge you a cash advance fee with an interest rate˳ This is a very costly way to borrow and manage finances for emergency situations˳
Therefore, what is the best amount that should be set aside as emergency money? There are diverse opinions on it˳ Some professional’s experts agree that a minimum of 3-6 months’ worth of monthly income should be set aside for an emergency situation˳ This amount can differ according to marital status, the size of family and lifestyle˳
Everyone must reserve some extra cash in case of emergencies˳ But, the amount to reserve depends on your income and monthly expenses˳ The amount that is needed for your emergency fund is open to debate, the minimum amount should be sufficient to cover your expenses for daily living for at least 3 months˳ It’s also ideal to save for 6 months even though some financial advisers agree on a full year worth of cash˳
These funds must be kept aside in an instrument, which is easily available when needed˳ It could be money in a bank account, hard cash, liquid funds or fixed deposits˳ This will ensure the fund is always accessible instantly or within a short period when it’s needed˳
Where to Keep the Cash
Your situations and what can offer you peace of mind are the factors that can help you determine how cautious you want to be˳ Keep your emergency fund somewhere that is safe and accessible because you may be required to get the cash in a hurry when an emergency arises˳ The best option you’ve is to open a money market account or savings account˳ But, always examine their offer with regards to the interest rate, minimum balance, and other terms˳
When you think you’ve saved enough, you can stop˳ You can now sleep easier and try to start placing your extra saving into higher-interest and less accessible accounts or investments˳
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