As the name suggests emergency funds are those which you keep aside for sudden unexpected situations. There may come a time when you may need sudden funds due to a situation such as a cut in income or job loss, or an accident or other medical emergencies. These sudden situations leave you with no choice to work around your budget. You have to spend money to fix these situations. A job loss does not mean you would stop eating. So you need to have emergency funds aside for such situations. An emergency fund enables does the following for you:
Helps you sail through such unexpected situations without having to take debt
Protects you from taking high-cost loans such as a credit card cash advance
It enables you to have complete control over your finances.
What We Recommend For Your Emergency Fund:
Have A Savings Account
You need to have the right kind of account where you keep your emergency fund. A savings account would ensure you can withdraw this money without any hassle whenever an emergency situation develops. Some things you should keep in mind are:
Keep this account separate from the account you have for your daily expenses
There is no transaction fee for the use of this account. If it is there it should be a low one.
Withdrawals can be made smoothly without penalties
You get interest on the money you keep in this account as your savings
Start Small
An emergency fund is built penny by penny over time. You can't have a big fat emergency fund within a small period of time. Remember you would need to take money out from your salary to keep towards the emergency fund. So don't feel low on seeing a small amount. It will rise on a monthly and yearly basis. The more you can put aside every week and every month, the more this amount will grow for later use.
Try Automation
Automation is a great way to ensure your emergency fund is taken care of. You could pick a date and an amount for monthly or fortnightly deductions from your daily expenses account to your emergency fund or savings account. This helps with savings even if you don't remember to manually transfer the dedicated sum.
Bloat your emergency fund
Dedicatedly put any additional money you receive in your emergency fund. It could be a salary hike by way of promotion, a tax refund, a sale (car or jewellery), gifted money from friends or family etc. Put such amounts or a big part of such amounts in your emergency fund and watch it grow. If you finish paying off any loan, deposit the same amount in the same frequency to your emergency fund. This is a great way to make it grow.
And lastly, when you think of using up all or a part of your emergency fund, give it some thought. Is the emergency real? If so, go ahead and use what you have painstakingly saved over the years. If not, try to resist.
If you need any help with Emergency Funds, do not hesitate to contact LendX Financial in Brampton, Greater Toronto Area.