Emergencies can come any time in life and are unavoidable. You can never know when an emergency is approaching but you should stay prepared. By keeping some emergency fund in stock, you can overcome the emergencies without worries and hackle.
If you are already adding to your emergency fund every month, then you are doing a great job but if you are not, you should know why it is necessary.
To get started first you should know what an emergency fund is. As the name suggests, it is the money you save up for unexpected expenses. For instance, medical emergency, unexpected job loss or any of such kind. You keep on adding to the fund as and when possible but should only withdraw it in case of emergencies mentioned.
According to researches, ’The Balance’ says you should save at least 3-6 months of your total expenses as your emergency fund. According to DaveRamsey.com, keeping in note of the circumstances, if you are a one income household, it is a good idea to save 6 months of expenses but if you are a part of two-income household and have a steady job for several years, a 3 months expense is enough for saving the emergency fund.
A saving of $1000 as emergency fund is enough if you are in debt .All you need to do is at least start saving and then work on increasing the amount you save slowly by keeping in check the expenses and cut back some from the areas where you can.
A question may arise to you that if you have a credit card then why worry to save the extra amount separately. Well, the simple answer to the question is if you cannot pay off the balance in full right away, you would have to pay the interest on top of whatever you are previously charged.
A separate emergency fund will save you these extra payments.
Keep in mind that you should not consider all needs or wants as emergencies and pull out money from the emergency fund whenever you feel like.
DaveRamsey.com say you should first ask 3 questions to yourself before taking out money from the emergency fund and if and only if you can answer yes to yourself for those questions ,it is okay to take money out. The three questions are – is the cause unexpected? Is the cause necessary? Is the cause urgent?
Keeping all these things in mind though would not help you from preventing emergencies but will obviously help you to handle it without any financial stresses.
