Emergency financial situations can occur to anyone and without the planning of such events, no practice of financial arrangements is ideal. The whole idea of an emergency fund is to provide a means against any unexpected expenses.
This will ensure that it does not have any negative impact on your financial condition and does not compromise the entire financial security.
There are many situations that can lead to a financial emergency such as sudden illness, accidents, medical emergencies, emergency home repair, job loss, emergency car repair and more.
The main reason for having an emergency fund is very clear because when a person comes into an emergency financial situation, they have to destroy their savings or make concessions to get the necessary funds.
It is not uncommon to find people who just take out their credit card and criticize it for hard work. Contrary to popular opinion, credit cards are the worst way to fund a financial emergency. The fastest way to get thousands of dollars for a car loan is not a long term solution, but a short term solution.
In any situation where you have purchased a cash advance using your credit card to get the necessary funds, the credit card company will charge you a cash advance fee at an interest rate. It is a very expensive way to borrow and manage finances for emergencies.
So, what is the best amount that should be allocated as emergency money? There are various views on this. Some professional experts agree that a monthly income of at least 3-6 months should be allocated to an emergency. This amount can vary depending on your marital status, family size, and lifestyle.
Everyone should reserve some extra cash in case of emergency. However, the amount of reserves depends on your income and monthly expenses. The amount required for your contingency fund is open for discussion, and at least the amount should be enough to cover your daily living expenses for at least 3 months. It is also ideal to provide for 6 months, although some financial advisors agree on the full cash value for the entire year.
Money should be set aside in the equipment, which is easily available when needed. It can be money, hard money, liquid money or fixed deposits in a bank account. This will ensure that the box is always accessible immediately or within a short time of need.
Where to put a cache
Your attitude and those that can give you peace of mind are factors that can help you determine how alert you are. Keep your emergency fund in a safe and accessible location as you may be asked to receive money quickly when an emergency occurs. Your best option is to open a money market or savings account. However, you should always check their offer regarding interest rate, minimum balance, and other terms.
When you feel you have saved enough, you can stop. Now you can sleep easily and try to put your extra savings into less useful and less accessible accounts or investments.