Building An Emergency Fund A Vital Part Of Financial Planning

Building An Emergency Fund A Vital Part Of Financial Planning



Building An Emergency Fund a​ Vital Part of​ Financial Planning
None of​ us have the ability to​ foresee the future or​ predict the hurdles which lie ahead of​ us. This makes building an emergency fund a​ financial priority. Building an emergency fund is​ healthy for your financial well being, since you’re rarely given advance notice of​ a​ setback or​ an accident which will keep you out of​ work for an extended period. it​ is​ also a​ safety net that can save you from bankruptcy or​ severe financial hardships in​ the event of​ an unexpected change in​ your income or​ expenses.
Housing a​ small rainy day fund should be a​ vital part of​ an individual’s financial goals. This is​ of​ high importance if​ you don’t already have readily available funds in​ your account for covering any unanticipated expenses. They provide financial security because they give you funds to​ fall back on if​ you become ill, or​ if​ you or​ your spouse loses your job, you incur large medical bills, or​ have an unexpected large bill such as​ a​ major car or​ home repair. You do not want to​ end up in​ a​ situation where you have to​ buy daily necessities on credit and end up payments on groceries you bought two years back on credit, with a​ further 1018% interest on it.
Saving your money in​ an small account for emergencies is​ definitely a​ better alternative to​ taking a​ loan or​ cashing in​ your longterm investments. if​ you take a​ loan, there is​ the additional burden of​ paying interest. Encashment of​ your investments before maturity means not only will you lose out the interest, but also some part of​ the original investment. This will also set you back significantly in​ your overall financial plan.
Success at​ building an emergency fund depends on consistency of​ saving money on a​ regular basis, and resisting the urge to​ dip into this rainy day fund for nonemergencies. This money should be kept separate from the general savings account. Otherwise you will be tempted to​ dip into these monies even if​ you simply run over your budget at​ a​ certain point. a​ substantial part of​ this emergency fund account should be invested in​ low risk funds. This ensures that your investment does not lose its value in​ case you need the money. Also, it​ should be extremely liquid, to​ give you access to​ the cash easily and quickly if​ you need it.
The size of​ the special savings account will depend on your personal situation. People often keep three to​ six months’ salary in​ the reserve. But you will have to​ decide on an appropriate amount based factors such as​ your dependants and fixed monthly expenses.
If you are single with no obligations, and have a​ reliable support system of​ friends or​ relatives during a​ financial crisis, you might not need a​ substantial amount stashed in​ this fund. This is​ opposed to​ someone who needs to​ pay nursing costs for his aging parents and supporting a​ young family. The more people you support, the more likely you are to​ have unexpected or​ unplanned costs.
While making a​ decision about an emergency fund, you should also take into account the degree of​ difficulty youd have in​ finding a​ new job if​ you lost the present one. in​ case of​ a​ twoincome household, the contribution of​ both parties should be weighed while calculating how much you should keep aside.
You may not be able to​ gather your emergency fund money together at​ once. Treat it​ as​ a​ financial goal and add to​ the kitty over time. if​ you get a​ tax refund, put it​ in​ your special rainy day account. Maybe a​ part of​ the bonus at​ work!




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