When it comes to personal finance, anything can happen, good or bad. Which is why having financial goals and plans for the future is necessary and of such plan is to have an emergency saving for uncertainties and unforseen events.
There are some things we don’t bargain for in life that just happen, this is why it is very necessary to have an emergency fund.
In this article i will be focusing on how to build emergency fund savings which can be used to resolve events that happens unaware and unexpected
What is emergency fund?
An emergency fund is an account for funds set aside in case of the event of a personal financial dilemma, such as the loss of a job, a debilitating illness, or a major repair to your home. The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to draw from high-interest debt options.
This savings are majorly kept to tackle unexpected events which demands spending of money.
Note:No financial institutions such as bank, co operative and other financial institute have account labeled or tag emergency funds. Rather, the task falls on an individual to set up this type of account and earmark it as capital reserved for personal financial crises.
According to most financial planner, an emergency fund should contain enough money to cover at least three months your income.
How to build emergency fund
Below are step to build an emergency fund savings the major factor is starting early, if you start building your emergency fund early in no distance time you will build a comfortable savings against any emergencies that might rise later in life.
The step to build emergency fund are not complex. Here some step to been taken in building emergency fund savings:
1.Understand your income vs your expenses.
Take your time to analyze how much you make monthly and how much spend on monthly basis. Having understanding of these will help determine how much really need emergency fund and the amount you can put on its monthly.
This amount should be calculated keeping an eventual goal for savings that will contribute to your fund. As you move up (or down) through your career, you can revise this figure. Once the fund is built up to the level you need, invest extra savings for the long term or for other goals, such as buying a new apartment.
2.Set a target
Ideally, an emergency fund should have an accumulated sum of at least four to six months of a person’s monthly income to make fund easily accessible. Set a target for yourself to achieve this goal.
Decide how long it will take you to get to your target based on how you save monthly.
Also, come up with a plan to commence your saving process. Having a plan and setting goals is a perfect combination to have a functioning emergency fund.
For example, A married couple who earns $108,000 annually after taxes should set aside a readily accessible minimum of $27,000 (three months) to $54,000 (six months) to address unexpected financial surprises. The funds should be highly
liquid, remaining in savings accounts. These vehicles allow quick access to cash for satisfying household expenses during an emergency situation
3.Create account where you can easily access your fund:
A savings account is the best place to put an emergency fund. So you won’t have any problem when you need the money.
You need to also make saving into an emergency savings account automatic. Plan regular payments every month from your salary account to your emergency fund, using your bank’s automatic transfer payment plans. It makes it easier to save for emergency when you actually forget to do so at the end of every month.
These are simple ways you should use to start building an emergency fund to resolve financial surprises at anytime anywhere.
- An emergency fund is a financial security for future mishaps and/or unexpected expenses.
- Financial planners recommend that emergency funds should typically have 3 to 6 months’ worth of income in very liquid form so that it is instantly accessible.
- Use tax refunds and other windfalls to build up your fund.
In conclusion, i believe we all have a plan to financial freedom, and i also believe that after reading this article your have added emergency fund savings plan to your already made plans, now the bigger task is to follow through with all your plans and strike balance between them because it is the hardest part of achieving financial goals.