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Emergency Fund: How It Protects You

By: kjmena


An emergency fund is a form of savings plan in which you save money for unexpected financial situations. These unexpected situations can range from a medical emergency to unexpected moving expenses.

An emergency fund is a form of financial security that can protect your finances at critical moments. However, it is meant to be used as a temporary form of financial aid and alleviation.

 

1. Gives you a line of defense against financial instability.

When unexpected financial issues arise, it can throw your personal finances into chaos. Especially if it is a situation in which there are compounding factors that are significantly affecting your ability to improve your finances.

You can reduce the affect of all of these factors through an emergency fund. The savings that you have built over time will be able to stop the consequences of your financial problems and help you keep your personal finances secure.

 2. Promotes good spending habits.

One of the best ways to save money is to budget. A budget is a powerful tool for planning expenses and keeping track of your finances. As well as a helpful way to save the most amount of money without limiting your financial obligations.

An emergency fund as a form of savings, will allow you to be more frugal and wise about spending your money. You will be motivated to spend carefully, knowing that you want to make the highest contribution of funds to your emergency fund on a monthly basis.

3. Focuses your financial goals.

When it comes to personal finances, it is good to have goals. Goals keep a person motivated and focused on their specific task. The more specific a goal the easier it is to follow and meet.

Goals can also make you more aware of your financial situation and hold you accountable if there are any obstacles to your financial success. You will be able to force yourself to change your spending habits to suit your goals and make better financial choices. This will in turn, make you financially successful.

An emergency fund is a good back-up plan to have even when you aren’t facing financial issues, it can make you more fiscally responsible and also help improve your financial standing. If you don’t currently have an emergency fund, consider starting one, it could save you from debt and stress in the long run.

 

Tips For Creating an Emergency Fund

Saving money is an important part to forming a healthy financial plan. However, there are more ways than simply budgeting to save to raise funds for an emergency fund. An emergency fund is a great resource to have when it comes to having extra funds for spending when you are short.

 

Save in small quantities on a regular basis.

A common misconception is that to build a large savings fund, you have to save in large quantities. However, saving money is all about your needs and goals. Also on your budget and how much money you can afford to save.

A good option for saving funds towards your emergency fund, is to start with small amounts on a routine basis. Maybe doing $20 or $25 dollars a day or weekly or bi-weekly. Staying consistent is what is going to grow your funds in the best way.

 

Be a frugal spender.

Being frugal means being wise about your spending choices. When you are being frugal, you use your money in a way that is efficient but also beneficial. This can mean shopping when there is a sale, stretching every dollar and maybe cutting back in areas that are costly.

When you are being frugal, it doesn’t mean you have to be cheap. You don’t want to sacrifice quality when using your money because then it could cost you more to replace or improve on that expenditure. One of the easiest ways to make yourself more frugal is to think twice when going to spend funds. Think about how each expense affects your budget and how it fits into your financial lifestyle and you will be less likely to spend unnecessarily and put more into your emergency fund.

 

Downsize on your living expenses.

Living expenses are one of the areas of your budget that can actually be the costliest. This is due to the fact that living expenses include, a car payment, a rent or mortgage payment, food expenses, and utility bills. With so many financial obligations, it can be difficult to cut back on spending, but it is possible.

One of the quickest ways to decrease your living expenses, is to cut your cable and internet down. There are now a variety of online streaming options available that are only a fraction of the price of cable and only need a basic internet package to work. Also your utilities are based on usage so they are easy to decrease. Try to keep your water and electric usage to a minimum when you are home and to practically nothing when you aren’t. Allot all of this extra capital to your emergency fund instead.

 

 

An emergency fund is meant to be a financial benefit and a good financial reserve to your regular budget. An emergency fund can be started very easily and only takes a couple of changes in your financial lifestyle to grow.

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