Usually, after meeting basic needs the first thing you should do, is to start an emergency fund. In this volatile economy, an emergency fund is vital for your financial security.
What Is An Emergency Fund?
An emergency fund is an account that is used only in case of emergency to improve financial security. It is not to be used to buy a new car, or something of useless, but in case of an illness, loss of a job, or a major expense.
An Emergencies Found Is Necessary?
Imagine the worst-case scenario: you’ve an incident with your car, while your house burns and you can not do anything. You survive and slowly recover in about 1 year.
A real emergency is something that threatens your survival. If you do not want to accumulate debt you need to have an emergency savings. Here are three real-life example of emergencies that happened to my friends.
- Shop clothes just laid off over 200 workers.
- A cupboard collapsed.
- My friend john had a heart attack while playing football.
These examples show how an “emergency found” is essential and you can’t afford not to have one. In each case, you need to build a larger cash cushion that are going to better than without one.
How Does To Start?
First to starting an emergency fund be sure that you’re meeting your basic living expenses. And as you create your emergency fund, be sure you’re also reducing your spending and avoiding debt.
Now, a question people could ask again and again is: How much you should save?
It’s depends by your needs. In my experience, the happy medium for one person is $4000, which help you to pay a few expenses for a couple of month and the mortgage for two month. If you don’t have $4000, then You can start with your mortgage as first goal, then all expenses.
Once decided how much you should save, put your money in the right bank in order to earning interest on your emergency found. I keep my emergency fund in a savings account on ING and have money from my paycheck direct deposited to it.
