Steps on creating an emergency fund
In addition to savings, you must have a stored amount of money to cover events that are beyond your control. Sickness or an accident can result in unexpected costs, for which you should be prepared so that it will not damage your financial course or affect the savings you have for your projects and plans.
These are the suggested actions to take
How to create the background
1. Designate a monthly amount to address the emergency fund. That depends on personal circumstance : how is the family income, how many people are in charge and what other options you have to find money quickly if necessary.
2. It is recommended to build the equivalent of three to six months of normal expenses and have them stored. The amount you need should be enough to pay the rent and the share of other loans, food, electricity bill, insurance, schools, etc.. during that period, so ask yourself what amount saved would give you security and secure the objective.
3. Set the goal of the emergency savings and start building it up, by cutting down some expenses and use some of your normal savings too. This way could reach your goal and be able to move on with your regular savings quicker.
4. If you reach your goal, check the amount of the emergency fund needed periodically, and increase it if is outdated.
Look for the following three characteristics:
1. Liquidity: unexpected accidents are indeed not expected so the emergency fund money must be readily available when needed. So you should not open checking or savings accounts used to pay household bills and credit cards, or have it in fixed deposits for too long.
2. Security: The emergency fund is your safety net, which is why you should place it into safe products which will ensure the preservation of capital.
3. Performance: In the case of emergency fund, availability and security are more important than profitability. However, there is also no use of in all that money being saved in an account or under the mattress, without producing anything . The equivalent of a semester’s worth of expenses is a considerable amount and it’s common sense to seek any profit, no matter how small.