MJ Gonzales│ ExecutiveChronicles.com
It’s common that you are saving money for your future and anticipated expenses like cars, travels, house and business. Somehow you are also building money so sooner you become investor in different ventures such as stock market, mutual fund or T-bond. But according to financial experts, the first and crucial step to financial freedom is creating your emergency fund.
Emergency fund is a kind of savings that you’re going to use in situations like job loss, urgent medical expenses or home repair. Like risk management for business, it is practical to have money for emergency because life is indeed unpredictable. Even if you have money in the bank or business, if knock on wood, something bad happens your piggy banks will have several holes that will drain your hard-earned money. What’s the worst case scenario? You have to say good bye to your business and precious investment?
“A broad guideline is three to six months’ worth of the money that you need for all non-discretionary expenses (such as health insurance, your mortgage and food). That way, you have enough that if you were to lose your job, you’d be able to continue paying your household bills while you looked for another one,” Time’s report about emergency fund. The news magazine also added that this fund is separate from your usual savings account, accessible in case you need it quickly, and should not place in a high risk investment.
The Bank of America also mentioned that factors to consider in your emergency fund are housing expenses, food, health care, debt payment, transportation, and personal expenses.
“Your monthly payments for credit cards and other debt should be factored in to how much you save for an emergency fund in order to protect your credit score. Take steps now to get out of debt to avoid the stress of dealing with these expenses if you become unemployed or face a financial challenge,” the bank added.
Meantime, Huffington Post shared guides in creating emergency savings fund such as checking expenses, choose where to safely keep it, and know which one is emergency case and not.
“A family trip to Hawaii does not constitute an emergency. Before withdrawing be truthful with yourself and be sure the money is being used for a need not a want,” the news site reported. “It’s always advisable to work with a trusted financial planner to establish and build money for a rainy day.
Huffington also emphasized that even if the saver begins with smaller amount, but consistent that can create enough fund.