I’m very sure you’ve already head this before, but it bears repeating: When you’re starting to put your financial house in order, your first step is to build a well thought through emergency fund. As this provides you with a peace of mind as you hit some financial rough patches. It can be a small dip in your fund like a little car repair, a lost phone or something much bigger like medical bills, losing your job. In all these situations, you will want to get through them as comfortable as possible. But how much money do you need?
Since we all have unique situations, the simple answer to this above question is: As much as you need to feel comfortable. Even though, some experts advise you to have in your emergency fund between three and six months of living expenses, most people will be more comfortable having at least twelve months of living expenses in their fund. To have your emergency fund cover your needs, you should ask yourself these questions.
HOW STABLE IS MY INCOME?
Although no job is guaranteed, some jobs are more likely to keep than others. How long you’ve had your job, your position, special skills and other factors can help you anticipate your chances of keeping your job and subsequently having a steady income.
HOW MANY PEOPLE ARE DEPENDING ON YOUR SAID INCOME?
If only you depend on your income, you’ll need less money in your fund than if you are supporting others. The more the people that depend on your income, the more money you should have in your emergency fund.
WHAT ARE YOUR MONTHLY OBLIGATIONS?
If you have higher debts, or your rent and bills take a big portion of your paycheck, then you’ll need more money.
HOW HEALTHY ARE YOU?
No one can accurately foresee the future but if you are already at some health risk that might cost you your job or build up large medical bills, then you should let that reflect in your emergency fund. Unlike other expenses, your health will always need an urgent attention. So making it a priority in your emergency fund is not an option but a necessity. Even if you have a health insurance, having some extra money to back it up is highly recommended as your insurance might not take care of all your bills.
HOW TO START BUILDING YOUR EMERGENCY FUND.
Start your emergency fund as fast as you can. What can you do today that will provide you the money you’ll need tomorrow?
Putting part of your income into an emergency savings account can help you come up with some money when needed. Directly depositing into this fund before you even see it a good way to start. And also, let this emergency savings account be different from your other accounts.
REVIEW YOUR BUDGET TO CUT EXPENSES.
If you don’t have a budget, you might want to check out this FIVE SIMPLE STEPS TO CREATE A SUCCESSFUL BUDGET. Review your budget so you can come up with some money to deposit into your fund. Buying less clothing and spending less on eating out are good ways you can cut down on your expenses to save the difference for emergencies. This’s going to be hard but it’s worth it.
sell that extra phone, games to get some cash to put into your emergency fund. Online sales can be very helpful here.
TAKE AN EXTRA JOB.
I know this can’t be an option for many as it’s even difficult to find a first job. But if you have the opportunity to have a second job, take it, it can even be a weekend gig. That extra money should go towards your emergencies.
HOW TO SPEND YOUR EMERGENCY FUND.
The name explains it all. But in many times you’ll get tempted to use your emergency fund for other things that a’int emergencies. Emergency in your financial context, should be the things that affect your health or your ability to earn money.
You should not use your emergency fund to entertain yourself. It’s not meant for repairing your broken TV or games. Or to buy birthday presents for your friends and family (or yourself).
You go into your fund when you lose your job and don’t have any income coming in. Also, if there are medical bills, or your car is broken down and it’s not possible to get to work through other means.
NOTE: Your emergency fund should be very close, i mean you should have easy access to it and also, it shouldn’t be in any risky investment or account. The goal is not to increase its value, but to have it available anytime it’s needed. Putting it in a savings account of a trusted bank is a great way.