Financial setbacks are occasionally unavoidable and unpleasant: Your car breaks down, your power bill spikes, a hefty medical expense shows up, or you lose your job. When circumstances are tough, having an emergency savings fund can help you pay your bills and reduce your stress.
If you suddenly lose your job, having cash set aside for financial emergencies will help you to cover expenses like rent or mortgage, gas for your car, or the replacement of broken equipment without going into debt.
According to research by the Urban Institute, even a $250 emergency fund can help American families reduce their chances of facing eviction or being unable to pay a critical expense. An emergency savings fund is money in an account set up specifically for unanticipated expenses like:
an auto repair; paying for your home, insurance, food, and other necessary costs in the event that you lose your job or see a decline in your income; an unanticipated medical problem fixed for the house, like a leaky roof or a plumbing issue.
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Securing Your Financial Future
Your savings or retirement accounts are not the same as your emergency fund. An emergency fund’s purpose is to prevent you from utilizing your savings or accruing high-interest debt by using a credit card or loan to cover these costs.
A reasonable rule of thumb is to have three to six months’ worth of living expenses in your emergency savings account. For instance, if your monthly expenses are $3,000, your emergency fund should have at least $9,000 on hand.
In that manner, even if you lost your employment, you might continue to pay for necessities for a while. On the other hand, if your income is inconsistent at work, you might want to aim for a sum that will cover your costs for six to nine months. Make a list of your monthly bills that must be paid in order to determine how much you should put aside for emergencies in areas like housing, utilities, food, school fees, internet, and mobile devices.
Insurance, child care, payment of debt, and taxes: you can determine the quantity of emergency money you require once you are aware of your monthly spending.
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Source: YAHOO
