Do You Really Need an Emergency Fund?
Some may question the necessity of an emergency fund. After all, is it really that necessary? Or is it just one of those things people tell you need because they love being a bit overly dramatic?
How do you go about it? Does it need to be a huge amount? Here are some ideas and suggestions that should help answer these questions.
Is an Emergency Fund Really Necessary?
Generally speaking, yes, an emergency fund is totally necessary. What form it takes can vary, but it really is a good idea to have an emergency fund. Such a fund can help you avoid high-interest debt, and it helps reduce stress. After all, life is full of changes – many of them sudden and not good – and having that “cushion” can help you feel ready and calm.
You might not need to use your stash of money, but it’s just like insurance – it’s good to know it’s there if you need it.
How Do You Go about Creating an Emergency Fund?
First, determine your expenses. Look at three to six months’ worth of living costs and count on saving that much in a fund. This can help you keep your standard of living for a time if you lose your job, or it can cover a large expense such as vehicle repair.
Then determine how long it will take you to save that much and how much you have to take out of your paycheck each month to reach that goal.
Once you’ve determined how much you need to save and how long it will take to save it, it’s a good idea to change your mentality to put payments into the emergency fund before you pay for anything else. If you can do it by automatic deduction, go for it – see if you can have a portion of your paycheck taken out and put into a savings account. Otherwise, make it a habit to put money in your savings first and foremost, and then take care of your other expenses after. We love this post from wannabedebtfree.com about how to save £4k by Christmas Day – what a fab idea!
It might take you a while to get there and perhaps making simple changes to how you spend your money might help you get there faster. Undoubtedly it’ll seem totally unnecessary whilst you are saving and thinking of all the more fun things you could be spending it on – that is until something happens and you really wish you had some money to fall back on.
Check our these super useful top money saving tips to get you on your way to that emergency fund even sooner! And if you have a business, then it’s always a good idea to have a plan and so we recommend you check out Summerly Digitals post with tips to survive a business crisis.