Some may question if you really need an emergency fund. After all, is it really necessary? How do you go about it? Does it need to be a huge amount? What percentage of my income should I be saving?
There are so many questions and ways that you can save for an emergency fund.
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Here are some ideas and suggestions that should help you decide if you really need an emergency fund.
Is an Emergency Fund Necessary?
Generally speaking, yes, an emergency fund is necessary. What form it takes can vary, but it is a good idea to have an emergency fund. Such a fund can help you avoid high-interest debt, and it helps reduce stress. After all, life is full of changes – many of them sudden and not good – and having that “cushion” can really put your mind at ease and save you from unfortunate circumstances.
How Do You Go about Creating an Emergency Fund?
First, determine your expenses. The experts say to look at three to six months’ worth of living costs and count on saving that much in a fund. This can help you keep your standard of living for a time if you lose your job, or it can cover a large expense such as vehicle repair. I know that can be very hard to accomplish, so you might want to consider starting with a smaller amount if needed. The key is to start.
Determine how long it will take you to save the amount you’ve decided on and how much you have to take out of your paycheck each month to reach that goal.
Once you’ve determined how much you need to save and how long it will take to save it, it’s a good idea to change your mentality to put payments into the emergency fund before you pay for anything else. If you can do it by automatic deduction, go for it – see if you can have a portion of your paycheck taken out and put into a savings account. Otherwise, make it a habit to put money in your savings first and foremost, and then take care of your other expenses after. It will take some discipline but you can make saving money part of your family’s budget.
What If You Have Low Income?
Even if you have low income, you can set aside something each month. Try saving a percentage of your income, such as 5 or 10 percent. It may take you a lot longer to reach your goal, but it will accumulate.
If you absolutely don’t have any money to spare to put towards an emergency fund, you might have to consider adding additional income in order to reach your goal. Need some ideas? Check out this post on how to earn $500 this month.
Does It Have to Be Huge?
In short, no. An emergency fund does not have to be massive – but it certainly should cover unexpected expenses. To determine the size of your fund, consider what sorts of emergencies you’d want covered by the fund. Remember that buying insurance may be a more cost-effective way to guard against emergencies, too – evaluate the scope, likelihood, and potential cost of possible emergencies and this should give you a clearer picture of how large your fund needs to be.
Personally I would say having an emergency fund of at least $1000 is the absolute minimum. While that won’t necessarily pay for all of your expenses if you lose your job, it will allow you to be prepared in the event you have an unexpected expense or two.
So the answer to the question do you really need an emergency fund is a resounding yes! Life is so much easier when you know that you have a nest egg to fall back on when unexpected emergencies or unforeseen expenses arise. Financial stress can be one of the worst kinds of stress. Don’t be caught unprepared for life’s emergencies.
Do you have an emergency fund or are you planning on creating one? We’d love to know your thoughts, please share your experience with us in the comments!
Remember life doesn't have to be perfect to love where you are!
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