The Importance of Creating and Maintaining an Emergency Fund
Living paycheck to paycheck can lead to a number of serious problems and complications that can be easily avoided by those who have access to additional financial resources. Creating and maintaining an emergency fund is an attainable financial goal that almost anyone can achieve with a little careful planning and minimal effort. Having extra money to deal with a sudden loss of employment, unexpected home expenses or unforscene health problems is not an issue that should be left to chance. Setting up an emergency fund or creating a long-term financial plan in order to generate emergency savings over the long term can make a major difference in the days to come.
Assessing Current Income and Creating a Financial Plan
Even minimal savings can seem like a lofty goal for those who are struggling to meet their basic needs. Not having emergency funds or extra money on hand can actually lead to greater long-term expenses due to lost opportunities, late fees and other financial penalties caused by delinquent accounts. The first step in creating an emergency fund often entails assessing current spending, outlining existing and future expenses and creating a plan or budget to ensure money is not being wasted. Setting aside even trivial amounts of money every week or month can quickly add up.
Quick Access to Financial Resources
Emergency funds can provide both peace of mind and a greater degree of financial security. Quick and convenient access to emergency savings can be of paramount importance in many situations, and choosing the right type of account is a matter that should be given some thought. While having some extra cash on hand can always come in handy, savings and investment accounts that will earn interest or generate profits can be worthwhile for those who have managed to save up larger amounts. Ensuring that withdrawals can be made without issue, delay or penalties can be an important concern when deciding whether or not to invest extra money.
Creating an Emergency Fund vs. Paying Off Existing Debts
Having to choose between paying off old debt or saving money for a true emergency can be very difficult. While ignoring past debt in order to create an emergency fund may lead to higher interest payments and additional penalties, a sudden loss of employment, unexpected home expenses that cannot be delayed and other issues that require prompt action can be nothing short of a disaster for those who lack the necessary funds. Consolidating past debts into a single account, splitting surplus money equally between emergency savings and concentrating on debts once an emergency fund reaches a certain amount can all be effective solutions.
Setting a Savings Goal
Deciding how much money is needed in an emergency savings account or fund can also be an important concern. Building additional savings at the expense of other more lucrative investment opportunities is not always the most effective strategy. Saving a full paycheck can provide a basic level financial security, but such funds are rarely sufficient to cover the cost of unforscene health problems and other major expenses. Six months of income is generally accepted as the ideal amount for an emergency fund. With careful planning, diligence and a little creativity, even those who may be just scraping by may be able to save up six months of savings for their emergency fund over the course of a few years.