How an emergency fund reduces the bumps on the road
“When it rains, it pours.” Have you heard this saying? It’s referring how when something bad (or good) happens, it generally happens a couple of times. And guess what! It happened to us recently. A medical bill, a new laptop and a dead car this week. Thank goodness we had an emergency fund! Otherwise these unplanned expenses would have left us with a major bump. We want you to feel financially more secure for this unknowns and here are our tips for you to create an emergency fund.
What is an emergency fund
The name already hints at it. It’s money for unexpected expenditures. This could be a variety of things:
- A medical emergency that is not covered by your insurance company
- Losing your job and needing some time to find a new role
- Unplanned home repairs
- Car issues which you could foresee
It’s recommended that you have 3-6 months of your monthly expenses (not monthly salary) saved. Some suggests an even higher amount, especially if you are working in a highly specialised field and securing a new opportunity will require a longer period or potentially also a move.
Why you need an emergency fund
An emergency fund will help you bridge the time when looking for a new role or cover the unforeseen expenses without leaving a (too big of a) dent in your finances. It can help you get through a potentially disruptive and rather emotional period without having to take out a loan and possibly accruing debt. Financial worries are a leading cause of stress these days and it’s expected that employees worry 80 minutes each day about their finances. We don’t want you to be part of this group!
Knowing that the financials are taken care off, your stress levels will be lower. It will give you the focus that you can and will make it through this emergency. Overall, it’ll be easier for you to stay calm and make it through this challenging period in a more peaceful way.
How you can create an emergency fund
There seems to be an outspoken rule to start small and stay focused. Start by saving your first EUR/USD 1,000. If you’re based in our region, make it your first AED 4,000. To not even be tempted, set up a separate savings account and transfer the money into that account.
As a next step, decide how much you will contributed on a regular basis. Notice how we say “will contribute” and not “want to contribute”. This is already manifesting your commitment to creating that emergency fund!
You may need to review your weekly/monthly spending and see where you can and will change some of your spending habits to set up this fund. Small tweaks can have a big impact and give you that emergency fund quicker.
Speak with an independent and qualified financial adviser about options to invest in money market accounts (sorry we don’t provide financial advice nor do we recommend any adviser). These accounts allow you access to the funds while generally providing higher returns than standard savings accounts and may be appropriate for you.
Set up a standing order to automate your savings each week/month. This way, you won’t even miss the money and don’t get tempted to spend it on something else. In an ideal case, you won’t ever need to touch this fund.
As we faced these 3 unplanned expenses over the last 4 weeks, we felt comfortable (although annoyed, we admit that!) and knew that this upset was only temporary thanks to our emergency fund. This month, we’ll start putting money back into that account so we’re prepared next time something we didn’t anticipate hits us.
How has an emergency fund given you peace of mind?
Until next time,