Why Have An Emergency Fund
To have an emergency fund is very necessary if you want yourself to be protected from unexpected events. To promote a healthy financial plan, having a certain amount of cash set aside is an important component which ensures that you do not overpay your fund with money which could be used for other purposes.
Best Financial Tips on Emergency Funding
Overfunding Emergency Savings
You should be concerned about overfunding your savings in order to protect yourself from being exposed. Emergency funds are accessible and the best place to save your money is at your bank’s savings account where it can earn you a higher interest rate. You must not save more than what is necessary.
Determining The Correct Fund Amount
You must save a necessary amount of money that can provide you with a sense of financial stability and responsibilities. In addition to this, your family size, job stability, the number of vehicles you own or lease and whether you own or rent a home, should be kept in mind.
When you treat your emergency fund like insurance, you are actually preparing to protect yourself if something goes wrong. Therefore you must approach emergency funding the same way you would prefer covering yourself with life insurance so as to ensure that your financial position is relatively secure.
By considering alternatives to overfunding your emergency savings, you are actually preventing yourself from borrowing money in the time of need, be it from a friend or a relative or via credit cards. By doing so, you would also be able to withdraw funds for medical expenses without paying penalties. Thus it works as a backup plan.
Your Emergency Fund Should Support Your Financial Plan
Make sure that your emergency find is working with your financial plan and not against it so that you could be protected from the aftereffects of overfunding.
How Much Funding Is Recommended
To ensure a better financial plan, you need to save the required amount of money so that overfilling is avoided. Usually, it is recommended that you need to save between three to six months of expenses in your emergency savings fund. If you are a beginner, then you must save a few hundred dollars that could get you started. Some experts suggest as much as a year or more of your income. If you follow these tips, your goals will be achieved, in ensuring financial stability.
Benefits of Emergency Funding:
If you are experiencing unpredicted expense, you will be able to benefit from emergency funding. It will help you stop adding to your debt. An emergency fund can help you cover things like car repair and medical costs.
You would be able to plan extra savings for months as well. If you are working for a goal like owning a house or cars or starting a business, emergency funding would help you in the process. Thus, you would be able to progress in the field of finance.