Step By Step Guide Into Developing Funds For Emergencies.
Having a contingency fund is a necessary requirement for a sound financial plan. Consider it a shock absorber for unforeseen bumps of life. For this reason, it is always a good idea to keep some of the income to cater for emergencies should they arise.
To have a financial buffer during life emergencies, money has a crucial role in achieving this. So, everybody needs emergency funds to avoid getting into more or unnecessary debts.
But what are the procedures for developing contingency funds? Read through the post to find out the answers.
How to start creating funds for emergencies.
Decide On The Amount To Save.
Before embarking on an emergency savings plan, settle on the amount of money to put aside regularly based on the income pattern. Select the best calculator app from the renowned financial website to calculate the total income, expenses, and the amount to save.
Apply the 15:15:70 formula to help in building a sound contingency fund, meaning 15% bank saving, 15% cash savings and, the remaining as investments and regular expenses.
Set A Monthly Emergency Savings Target.
It is always advisable to keep a separate bank account to save emergency money with patience and self-discipline. After settling on the amount to save, transfer this money regularly into the savings account.
Also, it is vital to link the savings account with an auto-debit system to help remove any daunting problems in the future.
Avoid Extravagant Spending Of The Income Every Month.
Create a boundary between regular financial expenses and emergencies. Don’t always look at the emergency savings account; just make a habit of systemically saving in the account monthly without stopping.
Keep strict self-discipline to ensure there is a part of the money that is sent to the savings account.
Keep The Emergency Savings Liquid.
Always put the emergency fund in accounts that allow easy withdrawal and conversion of money into cash to ensure there is liquid cash in times of emergency. Confirm hidden charges such as overload and exit costs or any penalty charges before withdrawing the money.
For growth or interests, then save the funds in short or medium-term fixed deposit accounts, which can be withdrawn quickly during emergencies.
Divide The Emergency Savings Into Two Categories.
As a rule of thumb, it is best to divide the emergency savings into two categories-long-term and short-term emergency savings. Doing this will help solve emergency issues based on their effects and how long they are to last.
For instance, minor medical contingencies may require withdrawal from a short-term emergency account, while long-term emergency accounts can cater for major emergencies like retrenchments or chronic illness management.
Emergencies are inevitable and can happen to anybody, anytime. It is therefore important to have emergency savings account to cater for unforeseen occurrences and future life. Don’t just spend money extravagantly on unwanted things, but use it only when it is necessary.
Also, to ensure there is enough money to save, size down on exorbitant lifestyle habits. Remember, money is never a problem; its value is determined by how it is used.