Life is unexpected! So you’ll need to be prepared for any situation that arises. It could be a medical bill or a job loss. Sometimes it can be a small thing such as replacing a lost phone or car repair. In other words, it’s a life event that needs you to incorporate more cash into your budget. It can be tricky sometimes since you may not have planned for the extra expenditure and it can lead to debts. Here is where an emergency fund is essential because we need to save money for the unexpected.
You need first to understand what is an emergency fund. In a simple definition, an emergency fund is a sum of money that you decide to save for you to curb all the emergencies that may arise without affecting your normal life.
Let’s take a look at the way forward to setting up an emergency fund . Before that, you ought to ask yourself some questions.
- How Much Cash Should I Put in My Emergency Fund?
It’s recommended that you save enough money to cover at least six months’ worth of living expenditures. Why is that? In the case of an unexpected situation, this can stretch your time to handle the unexpected without going into difficulty hustles.
The expenditures are the spending of each month such as groceries, car loans, utilities, insurance, and other essentials. It should also include all the additional bills that are not monthly, but you incur once in a while and leisure activities expenses.
I would suggest you start saving for an emergency fund with an amount you’re comfortable with. Start slowly and later on you can increase the amount you save.