So not Adding new Debt – This occurs because you do not provide emergency funds so that when you are on the condition that needs to be spent and you don’t have money, you are going to add new debt.
In the article below, there are some tips for setting up an emergency fund so that your debt doesn’t increase and will quickly be paid off.
What is an emergency fund?
One of the causes of failed paid off old debts is due at the time of emergency you are do not have the money.
Therefore also you instead add a new debt.
To overcome these problems, one solution is to have an Emergency Fund (fund).
You may often hear the term emergency fund, but have you really understand what is meant by an emergency fund?
True to its name, emergency funds are funds or types of deposits which will only be used when there is an emergency or critical condition.
The State of emergency that occurs frequently and is experienced by many of them are losing their jobs, experienced a natural disaster or accident, medical necessity, unexpected home repairs, unplanned travel costs, and many other events that could not be predicted.
And then, how to determine that the circumstances that were experienced were an emergency?
When there is something you don’t expect Your estimates and beyond, it probably feels like a pinch, but may, in fact, it could be resolved without having to use an emergency fund.
To that end, do not be in a hurry to decide to wear Emergency Fund and ask yourself the following questions: 3
- “Whether it’s really unpredictable?”
- “Is it really necessary?”
- “If it is really urgent?”
The more you answer “Yes”, the more likely it is that a State of emergency and also increasingly justify the use of the emergency fund you.
Why Do I Need An Emergency Fund?
The existence of an emergency fund, you can persist at the time of an emergency without having to rely on another person or a credit card.
Below there are two benefits of having an emergency fund, among which are:
- 1 Keep your stress levels
It’s not unusual when an emergency happens in life, you will feel your financial well-being is threatened and as a result, your stress levels increase.
If you don’t have an emergency fund, you will feel like at the end of the Horn and can only hope the financial crisis will not befall you.
Be prepared by having an emergency fund will give you confidence that you can cope with unexpected events in life and provide financial tranquility.
- 2 Keep Your escape from Debt
If you don’t have an emergency fund, when You override the precarious state of affairs is going to do is borrow it from other people, using a credit card, or use other debt products.
The strategy may be working, if the money you borrow is still in accordance with the income you have.
But you need to remember, the risk of this solution is also very large. Costs that you must pay on interest debt can be very large and in fact, would add new debt.
Another case if you have an emergency fund. When an emergency befalls you, an emergency fund that can be directly used.
Therefore, the emergency fund should be stored in a liquid product so it makes it easy when subjected to conditions precarious.
How much emergency fund do I need?
A big emergency fund that you need is very dependent on the amount of the monthly needs as a whole.
In addition, marital status and number of dependents in your finances will also affect the magnitude of the emergency fund.
The following is the ideal amount of emergency fund needed in finance:
- 1 Single (don’t have dependents)
If you are still single and have no dependents, the ideal is an emergency fund of 6 times the amount of monthly expenses.
- 2 married (childless)
If you are married but have not yet had children, then the ideal quantity of emergency fund is 9 times the amount of monthly expenses.
- 3 married (having a child)
If you are married and have children, then the magnitude of the emergency fund is the idea of 12 times the amount of monthly expenses.
Where Should I Keep An Emergency Fund?
In contrast to monthly expenses used for daily necessities, an emergency fund will be used only at certain times, so that emergency funds need not be stored in the form of cash.
That’s why the emergency fund should be kept in a separate special account so that unused and mixed with other funds.
Short term savings is one of the products that are often used to store an emergency fund because it is flexible.
However, you can also save an emergency fund on investment instruments such as bank deposits, money market mutual funds, as well as precious metals.
Choose financial products that you think are most appropriate and make sure you save or invest the Emergency Fund in financial products which are liquid, accessible, and also safe (low-risk level).
How To Start Setting Up An Emergency Fund?
There are 5 steps you should do to prepare for an emergency fund, namely:
- 1 Monthly Savings Target Set
You have to get used to saving on a regular basis.
One way to do this is to use the auto debit system or transfer money automatically into Your emergency fund savings account each month.
- 2 Save Every Dime you Have
Often you get a refund in the form of a dime right?
Do not store money carelessly, because if you without feels the numbers are going to be very much.
If, where there have been many you can move it to accounts of the emergency fund.
- 3 Always check the money you have Each Month
Check out the money you have, either in the form of cash or on your account which contains money daily needs.
If there are leftovers, you can move all or part of the money to the account of the emergency fund.
- 4 Cut Expenditure where it is not needed
If you have absolutely no money to set aside in an emergency fund, cut your spending where needed or not to be tabled in advance.
- 5 make sure you check out the emergency fund You every month
If there is a change in the budget and also the financial records, you can adjust and determine how much emergency fund that you need to set aside each month.
But remember, you must have the target Yes! Lest you neglect Your obligation to put together an emergency fund to prioritize another spending is actually not so urgent.
Start your Emergency Fund Collected from now on!
The emergency funds it is essential and compulsory owned everyone, whether young people or parents, good people who are low income or high, whether single or married.
No word is too late to start saving some of your income for your Emergency Fund.
Your success in collecting emergency fund depends on the consistency of You to set aside income on a regular basis and your ability to not be tempted to use the funds for purposes which are not emergencies.