One savings fund that might be missing from your personal finances at the moment is an emergency fund. This is a big mistake. An emergency fund is a savings fund that you need to have. Find out why it’s so important and why you should start building one for yourself right away.
What Is An Emergency Fund?
An emergency fund is a collection of savings reserved for emergency expenses. An emergency expense should be considered an urgent, unplanned expense that’s outside of your budget.
Why Do You Need One?
There are several reasons why you need an emergency fund. It’s a versatile safety net that can help you get through a lot of financial obstacles.
Paying for Surprise Expenses:
Your emergency fund will come in handy when you have to deal with a surprise expense, like when your water pipes leak, and you need to call a plumber to fix them, or when your refrigerator stops working, and you need to get a replacement. Your emergency fund should have enough savings to cover these expenses at a moment’s notice without disrupting your monthly budget.
What could you do without an emergency fund? If you didn’t have this savings fund on hand, you might have to borrow funds to cover the surprise expenses and then work to cover repayments later. You could do this by putting the expense on your credit card, or you could apply for a personal loan online.
When you’re searching for online loans, make sure to check that they’re available in your location. So, if you live in Houston, you’ll want to apply for personal loans in Texas to help you cover your emergency expense. This way, you can guarantee that your loan is available to Texans.
Keeping You Afloat:
Your emergency fund can do more than help you cover surprise expenses right away. It can also help you stay afloat in times of distress when your regular source of income is not enough — or worse, when it’s not there at all.
The COVID-19 pandemic is a perfect example of why you need to have a substantial emergency fund sitting in your financial portfolio. So many Americans lost their jobs or had their work hours reduced because of the pandemic.
Many caught the virus and had to take time off from their jobs to recover. Others had to sacrifice their jobs so that they could take care of sick/elderly relatives or care for their children during school/daycare closures.
If you intend to use an emergency fund for this purpose, you should try to save up at least three to six months’ worth of your expenses in the savings account. This amount should help you manage your essential expenses for this period, which gives you enough time to recover and regain a steady income or get the support you need.
Reducing Financial Stress:
Another thing that an emergency fund can do is reduce your financial anxiety and give you peace of mind in your day-to-day life. You don’t have to worry about whether small or big emergencies will turn your finances upside down.
You know that you have a safety net set up to protect you in these circumstances. You can be confident that you can recover from these obstacles and get back up, relatively unscathed.
If you don’t have an emergency fund, you need to change that. Start making yours now!