A safety net can catch you whenever you stumble. It can stop you from getting hurt, and it can help you recover quickly from your fall.
So, what’s the safety net that can keep you out of financial trouble? The answer is an emergency fund.
What Is an Emergency Fund?
An emergency fund is a stash of savings dedicated entirely to covering urgent and unplanned expenses. It can help you deal with everything from sudden trips to the dentist, car repairs, plumbing fixes and appliance replacements.
You can use these savings to manage the problem immediately without having to worry about withdrawal wait times or penalties.
You can also take out these funds without worrying about how it will affect your day-to-day expenses. Since your savings are separate from your monthly budget, a withdrawal won’t impact your ability to pay your bills, your rent or any other responsibility you have coming around the corner.
How Do You Get Started?
So, how do you get started on your emergency fund? First, you should look at your budget to see how much you can afford to set aside every month into a savings account. If you don’t have a working budget already, you should start one right away. Download one of the top budgeting apps on the market and follow the instructions. It will help you organize your monthly expenses and achieve this simple savings goal.
Then, you should make a secondary safety net. It will take time to build up your emergency fund. Until you collect a substantial amount of savings, you will still be financially vulnerable to urgent and unplanned expenses. That’s why you should go to a website like CreditFresh and apply for a personal line of credit. A personal line of credit could help you manage emergency costs when you don’t have the funds to cover them.
What is a personal line of credit? A personal line of credit is an open-end credit tool that gives you a certain amount of credit to use. As long your account is in good standing, you can make a withdrawal within your limit and have it deposited into your personal bank account. Then, much like a credit card, you can make repayments later on.
How Much Should You Save?
There is no universal consensus on how much you should save for emergencies by financial experts. It all depends on your income and your intended goals. If you’re hoping to cover smaller problems, like household repairs, you should aspire to have $1000 to $2000 in your emergency fund. If you’re hoping with major life upheavals, you should try to have at least three to six months’ worth of your income in your fund.
Why would you need that much? Here are some issues that might require that amount of savings:
- Job loss
- Loss of a loved one
- Major home repairs
- Natural disasters
And of course, another example where this can come in handy is a pandemic. When the COVID-19 pandemic surfaced, people turned to their emergency savings — many ended up draining their entire funds. If the country ever goes through a similar disaster again, you will want to be financially prepared for it.
Set up this safety net for yourself. Once you do, you can be confident that you’ll stay out of financial trouble.