Financial emergencies can happen to anyone and any financial arrangement is not ideal without planning for such occasions. The whole idea of having an emergency fund is to offer a cushion against any unexpected expenses.
This will ensure that it does not have any negative impact on your financial situation and does not destroy your entire financial security.
Everyone needs to set aside some extra cash for emergencies. However, the amount of the reserve depends on your income and monthly expenses. The amount that is needed for your emergency fund is up for debate, the minimum amount should be enough to cover your daily living expenses for at least 3 months. It is also ideal to save for 6 months, although some financial advisors agree on money for the whole year.
There are many circumstances that can cause a financial emergency, such as sudden illness, accident, medical emergencies, emergency home repairs, job loss, emergency auto repairs, and much more.
The main reason for an emergency fund is very clear, because when a person gets into a financial emergency, he will have to break his savings or compromise to get the money he needs.
It’s not uncommon to find people who just pull out their credit card and put money on it. Contrary to popular belief, credit cards are the worst way to finance any financial emergency. The fastest way to get thousands of dollars is to get a car loan, it is not a long term solution but a short term solution.
If you chose a cash advance with your credit card to get the money you need, the credit card company will charge you a cash advance fee with an interest rate. This is a very expensive way to borrow and manage emergency finances.
There are different opinions about it. Some experts agree that at least 3-6 months of monthly income should be set aside for emergencies. This amount may vary based on marital status, family size and lifestyle.
Everyone needs to set aside some extra cash for emergencies. However, the amount of the reserve depends on your income and monthly expenses. The amount that is needed for your emergency fund is up for debate, the minimum amount should be enough to cover your daily living expenses for at least 3 months. It is also ideal to save for 6 months, although some financial advisors agree on money for the whole year.
These resources must be kept aside in a tool that is easily accessible when needed. It can be money in a bank account, money in cash, liquid funds or fixed deposits. This ensures that the fund is always available immediately or at short notice when needed.
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Where to store cash
Your situation and what you can offer peace of mind are factors that can help you determine how cautious you want to be. Keep your emergency fund somewhere safe and accessible, as you may be asked to get money quickly in an emergency. The best option you have is to open a money market account or a savings account. However, always research their offer with regard to interest rate, minimum balance and other terms.
When you think you have saved enough, you can stop. Now you can sleep easier and try to start putting your extra savings into interest-bearing and harder-to-reach accounts or investments.
Financial emergencies can happen to anyone and any financial arrangement is not ideal without planning for such occasions. The whole idea of having an emergency fund is to offer a cushion against any unexpected expenses.