Creating an emergency fund is smart. All the best things to consider to help you start one are below.
When Would You Need It?
The most important thing to consider is the scenarios you would need the cash in the fund for. There’s no point in you saving if you’ll be taking from the fund very often. There’s a key to figuring out which situations would be the most important – ask yourself if the cash needed would be necessary, if the situation was unexpected, and if you need money urgently.
Where Will It Be?
Don’t just store the money in a tin in your house. You’ll need to decide between a savings account or a fixed deposit. They can add interest to the collected sum, making it larger. With a regular savings account, the interest wouldn’t be that much. However, a fixed deposit could add quite a bit. ‘
Going the FD route can be a blessing and a curse – you wouldn’t be able to touch what’s inside for a fixed period. If you do, you’d have to pay hefty fees. At the same time, this prevents you from withdrawing unnecessarily.
Create a Budget
Decide how big of a fund it would be. This would influence how long you’d have to put cash aside, and how much of your salary needs to be stored away.
How do you know how big of a budget would be fine? Try and collect as much as 3- or 6-months’ worth of your pay check. With that much, if you happen to be terminated from work, you’d have more than enough to survive until you hopefully get a job soon.
If you’re in a medical emergency and need cash for medical bills, you would need a lot of money. There’s a chance you didn’t save enough to be able to cover the whole fee. That’s why trauma insurance can help. You’ll pay a premium – you can get a trauma insurance quote and find out how much this would be. The insurance company would reimburse you with a lot of cash in the situation of a major incident.
Right now, life might be going great. More importantly, your finances are very stable. There’s no reason for you to not put money aside for a very rainy day. When a crisis arises, you’ll regret not having had money to help. That’s why you’re supposed to be strict and consistent with the money you’ll be putting storing.
Make things easier for yourself – get the money that needs to be stored automated; money from your salary would automatically be put into the fund when your pay check hits your account.
To sum things up, there are enough and more things to consider when creating an emergency fund. You have to be strict with keeping money aside. Remember that it would be for your future. Decide on the place the money would be stored too. You could either place it in a fixed deposit or savings account. The former would either be a good or bad choice depending on your situation.