Financial planning is not all that rosy. Sometimes emergencies can throw you off balance, especially when you are working under a tight budget. It is hard to have all areas of your life covered since you cannot foretell what will happen in the future. Therefore you have to be prepared for any financial storm that may come your way. Emergencies such as losing your job, needing a car repair, and being too ill to work may knock you off your feet; hence you need to plan for them beforehand.
Let’s first look at some crucial points on emergency funding that you need to take note of ;
- It is not for purchases that have been planned for, such as a new house, a car, or to fund an ongoing education.
- You do not have to start up with a large amount. You can also start with a bit of money.
- There is no standard amount for saving; it depends on your lifestyle
Here are some benefits you will experience after setting an emergency fund account
To Avoid Getting Into Debt
When faced with an emergency, the first thing we do when faced with an emergency is to think of who can help, especially if we do not have the money to solve it. You will be tempted to take a soft loan from a relative or a financial institution to solve the emergency. Additionally, asking for too much can harm your dignity and even confidence, especially if you cannot pay them.
Borrowing money during an emergency also makes you desperate. Thus you may agree to a bad deal to get the money. Such bad deals and borrowing lead one into debt and expenditures they had not planned for. However, when you set aside money for an emergency, you can quickly solve it without much straining or dependence on other people.
It Gives You Peace Of Mind
Emergencies slow down your life a little bit, especially something like sickness and unemployment. Therefore living from one paycheck to another is not a good idea. An emergency fund gives you some financial freedom to go ahead with your plans knowing that you are covered financially. For example, you can leave your job to apply for another one, start up a business, or join school without struggling during that transition.
The thought of struggling during significant life transitions ties most people down to jobs they do not like. Therefore keeping your emergency funding will give you both peace of mind and freedom to engage in different ventures since you have a fallback plan.
It Helps You Develop A Culture Of Saving
Having a separate account for the rainy day fund will help you embrace the culture of saving. Additionally, you will limit your spending since you will not have a large amount of money at your disposal. Sometimes when you check your account and find that you still have some money, you might be more reckless in your spending compared to when the balance is minor and limited to a specific budget.
Therefore to help you save and avoid spending unnecessarily, you should set aside an account for your emergency fund. This way, you will be able to resist spending temptations that may leave you with regrets. Furthermore, there is a certain level of control that saving gives you over your financial life hence making you more accountable.
Emergency Funds Secure Your Future
These savings can help shield your future retirement benefits, such as a pension, from solving unexpected emergencies. Solving your problems without taking credit means that you will not have to borrow from your future self. Unsettled debts accumulate and may end up affecting your retirement pension since you’ll have to repay some debts using the amount paid to you.
Your Money Will Earn Interest
Your emergency fund account may grow a substantial amount of interest when money is left there to do its thing. However, you have to look around for a savings account that can let you withdraw your money quickly and at the same time has high-interest rates. Therefore you will not only be saving but also your money will be growing. Developing a saving habit is quite complicated; however, having more money than you deposited should entice you to start saving up for unforeseen financial upheavals.
Your future self will thank you for saving up for emergencies. It is the least you can do to secure yourself from unexpected emergencies that come knocking. Nobody plans to lose their job or to become sick, but what if it happens? It would help if you always were on the safe side of the financial turmoil. With emergency fund savings, you can go through such situations without borrowing or compromising your financial goals.