Murphy’s law dictates that when something horrible can happen, it’s probably going to happen at the worst time possible, and there’s little you can actually do about it, which does sound a bit demoralizing.
However, while you can’t prevent some things from happening, you can hedge yourself against their impact, and the same thing applies to your finances, which you can protect in a number of ways, depending on the situation.
Should you be facing an unexpected expense or have simply lost employment, you’ll want to have some form of income to rely on for the next couple of months while you figure things out and get back on your feet.
This is where an emergency fund comes in, protecting both you and your family from unavoidable losses while also teaching you a great lesson about budgeting and how you should be saving for the future.
What makes it different from a savings account
While there are definitely similarities between an emergency and a savings account, they do have their differences, the biggest one being that the latter’s purpose is to ensure financial security in the future, whereas the former looks to protect it in the present.
Essentially, you’ll only dip into your emergency fund if you REALLY have to, and once you’ve spent it, the moment you’re able to start making contributions, you’ll build another one.
Most experts recommend having an emergency fund that can support your family for at least 6 months, meaning that you’ll need to have 6 months of expenses set aside to be fully prepared for just about anything life decides to throw at you.
While you’re using the fund to support yourself, you may want to get back on the job hunt right away if the cause for the emergency was a sudden loss of employment.
Finding a way to save every dollar
Of course, setting money aside is no easy task, and this is particularly true if you’ve already got a family or are working on several other projects.
You may have begun saving for retirement, and putting money in yet another fund may sound overwhelming, even more so if you’re low-income and already struggling to make ends meet.
Thankfully, there’s always a way to do something about your finances, and if you haven’t got enough disposable income to be thinking about building an emergency fund, maybe it’s time to start cutting some of your unnecessary expenses.
This can be as simple as choosing not to dine out or purchase name-brand products, both of which should be considered luxuries, and if that’s not enough, you should go after the monthly subscriptions next. You’d be amazed at how many of those you’ve forgotten about or simply don’t use enough to justify paying for them.
Put your emergency fund where you know it’ll be safe
When you’re knee-deep into building an emergency fund, you’ll want to find the savings account that’ll give you enough yield to make it worth your while, and the interest rates for high-yield accounts are often better than those offered by standard savings and checkings accounts.
However, there are still other factors for you to consider when choosing the account you’ll be using to store the money you’re saving for a rainy day, and among those, you’ll find fees, safety, and the accessibility you’ll have to the money you’ve set aside.
Some banks may also offer you the option to compare interest rates and these other factors to have an easier time determining what type of account you’ll be getting, and these tools are invaluable for building an emergency fund.
A money market account may come with the most favorable interest rate, but they often bring a higher minimum balance requirement and make it significantly harder to access your hard-earned money in a time of need.
Saving money can be tough, and saving money for an unexpected expense can be even harder, especially if you’re already dealing with financial problems of a different kind.
Despite this, having an emergency fund is almost mandatory in times like these, and you’ll want to be prepared for just about anything that may come up.
No matter how you look at it, building an emergency fund can be pretty challenging, and it’ll take a lot of determination and discipline to make it work, which shouldn’t be too hard if you’ve already faced hardships and come out on top.
Staying in full control of your finances is crucial for a stress-free life, and if you’re able to prevent yourself from panicking when a major expense or loss of income appears out of nowhere, it’s a sign you’re doing something right.
Always remember that your and your family’s future is what’s most important, and even if it may seem like you’re trying a bit too hard with all the budget cuts, you’ll be thankful for what you’ve done.