Emergency Savings Fund and How to Save for the Unexpected
Life can throw you a curve ball at any moment and you won’t know what hit you. This unpredicted curve ball can come financially as well when you need lots of money very urgently. Setting aside money every month can contribute to making an emergency savings fund and makes it easy to have cash during the times of need.
Meaning of emergency fund
When you have a financial shortfall and have a fund to lean back on which can support your life even further for more time and in the case of emergencies is an emergency fund. Having a savings account is thus important when you fall short of cash or in the case of unforeseen incidents.
When you start saving and not use it for a long time it makes up for a long-term savings fund as you would have accumulated lots as you wouldn’t have needed it in the past. So the idea is to have two funds which you can use depending on the type of crisis.
Money matters are always stressful and you must have a plan to fall back on if something goes wrong. Therefore you can use plan A and plan B in terms of emergency funds with the following emergency fund tips.
Divide your funds into two which will make up for your plan A and B. Having two emergency funds does the trick to lessen your burden and they are given below.
Short term emergency fund – Use this short-term emergency fund when you have an immediate requirement of cash and when you have none of it. When there are immediate emergencies like a car accident or breakdown or making an emergency payment use this short-term fund to keep you going and not falling behind on anything.
Long term emergency fund – In the long run somewhere down the line you will need a huge sum of money for meeting up with unforeseen expenses like when there is a natural disaster and damages your home or a family member falls ill and needs an immediate operation. With this case, you must remember to have sufficient emergency fund allocation in your account.
These two steps become a stepping stone to save for any unexpected situations.
How to save?
In this growing world, everyone has various needs and wants and satisfying them can take a whole lot of money so the question one often asks is how to save. If one wants to create an emergency fund consider to cut down your expenses and wastage of money. Saving little every month makes a big difference if it is too much then consider putting money aside every three months or six months. You can also consider emergency fund investment option where you invest in a fixed deposit. With these measures, one is sure to build their savings and use when required.
How should the fund be?
Your fund must have certain qualities that will make it easy to use and you must not have any trouble in getting the cash and hence your fund should have the necessary qualities.
Low risk – When you are making long term savings by investing in bonds or shares you need low risks as you cannot afford to have a loss when you are trying to save money.
Liquid cash – Your savings must be in liquid cash if not all some of them as emergencies can crop up anytime. Assets like bonds and shares must be able to convert into cash easily.
Accessibility – One must be able to access cash in a short notice for which short-term funds need to be created and the long-term funds can be accessed when you have a bigger emergency.
Steps to start saving for the unexpected
Getting started is the most challenging part in saving for the unexpected but with the breakdown of the steps one can easily get started and gain momentum. Here’s how you can build your fund.
Crack it to the basic step – Select what type of fund you want long or short term after this see how much you can contribute towards your fund every month and how you can achieve the target.
Cut down on the unnecessary – If one can cut down on unnecessary expenses like buying things you already have and eating out this can lead to more contribution towards your fund.
Automatic transfer – If you find it troublesome to manually make your emergency fund create a separate account and make an automatic transfer to that account.
Transfer investments – when you invest in shares and get the returns directly make it transferable to your emergency funds.
Reward yourself – When you achieve the given target of your savings reward yourself by doing something other than the usual for yourself. This will encourage you more and bring in confidence.
Summing it up
Savings are a blessing in disguise in case of emergencies, be it big or small. It is important to have money set aside for any type of unforeseeable situations. Start saving now and not worry later is the biggest point of having an emergency saving fund.
Peter Christopher is the finance blogger at Finance Care Guide and a guest columnist for many blogs that deals with personal financial management. He has devoted himself to full time speaking, writing and consulting on personal finance management. Visit him on Google Plus and Twitter.