Have you heard about emergency funds from someone or somewhere and you didn't understand what they ment?
Have you been wondering what an emergency fund is ?
Well, if you are in that category welcome to this blog, today we have detailedly explained everything you need to know about an emergency fund and how it is been utilized.
What is an Emergency Fund?
An emergency fund is a sum of money which is deducted from salary, savings or wages after removing the amount needed for your daily, monthly or weekly expenses as the case may be.
Emergency funds as the name implies are kept when an urgent unexpected need rises, one doesn't have to break the savings to meet those needs. In situations like that, emergency funds helps a lot.
What is the Difference Between Emergency Funds and Savings?
Savings is a commitment which is done for future purposes or plans. For instance one may decide to save up 50% of his salary for 2 years to buy a house.
Emergency Funds on the other hand is an amount which is kept aside in case of unexpected events such as sickness, accident and so on. With the help of emergency funds one those not have to disrupt his savings due to emergencies because of the backup he has put aside for those happenings.
We all know that accident which is an unexpected event is sometimes inevitable so one must plan ahead of time to avoid disruption of future plans.
How to Keep Emergency Funds?
In this heading we will be looking at the different methods which an individual can utilize in keeping emergency funds:
1. Calculate Your Expenditure:
Before thinking of keeping emergency funds or involving in any activity that requires money, it is recommended for one to calculate his daily, weekly or monthly expenditure. This will help him decide how much he can deduct from his income as emergency funds without negatively affecting his savings routine or standard of living.
2. Determine the Amount of Money to Keep:
This is required of every one who wishes to keep emergency funds, it is a must do action that you determine how much you will keep as an emergency fund and also your commitment to keeping the money. Determining how much to keep varies from person's to person's as it would require you do a personal analysis of yourself and see how much you've spent over the years unexpectedly.
After determining the amount to keep, you then have to choose a commitment routine which bests suits you i.e you have to decide if you will keep a one time big sum of money as an emergency fund or you will be keeping a percentage of your salary, wages or income as emergency fund.
3. Create a Separate Bank Account:
We recommend that for best experience you create a separate bank account which you will use to keep your emergency funds. The account should be an account that isn't easily accessible and sperate from the one's you use for your daily transactions.
0 Comments