Anyone can experience an emergency financial situation, so any financial arrangement exercise is not recommended without making provisions for such situations. The purpose of an emergency fund is to provide protection against any unforeseen expenses.
This will ensure that it has no negative effects on your financial situation and doesn’t undermine your overall financial security.
There are various situations that can result in a financial emergency, including sudden illness, accidents, medical problems, emergency house repairs, job loss, emergency car repairs, and many more.
The main justification for having an emergency fund is very obvious because when a person runs into a financial emergency, they will need to break their savings or make a sacrifice in order to obtain the necessary funds.
People who simply pull out their credit card and swipe it for hard cash are common. Contrary to popular belief, credit cards are the worst method for financing financial emergencies. The fastest way to get thousands of dollars is to obtain a car title loan; this is not a long-term solution, but a temporary one.
When you use your credit card to get a cash advance so you may get the money you need, the credit card company will charge you a cash advance fee plus interest. This is a very expensive method of borrowing money and handling finances in emergency situations.
What is the best amount that should be set aside as emergency money, then? There are several opinions on it. A minimum of three to six months’ worth of monthly income should be kept aside for emergencies, according to certain professionals’ experts. This sum can vary depending on marital status, family size, and lifestyle.
Everyone has to have some extra cash on hand in case of emergencies. However, the amount to reserve is determined by your income and monthly spending. The amount required for your emergency fund is up for debate, but the very minimum amount should be enough to cover your living expenses for at least three months. Even while some financial advisors agree on a full year’s worth of money, it is also preferable to save for six months.
These funds must be kерt аѕіdе in аn іnѕtrumеnt, whісh is еаѕіlу аvаіlаblе whеn nееdеd. It соuld bе money іn a bаnk ассоunt, hаrd cash, liquid funds or fixed deposits. Thіѕ wіll еnѕurе thе fund іѕ аlwауѕ accessible instantly or within a ѕhоrt реrіоd when it’s nееdеd.