Losing a job, having unexpected medical bills or emergencies, and other issues arise without us planning for them. So, in these emergency or dire situations, how are you going to pay the bills? Do you have the funds set aside, or have you gone through a licensed money lender to take out the cash you need when an emergency does hit? You do not want to have to deal with these issues, but they do occur; and, as you can’t plan for them, and do not know when they are going to arise, you should make sure you have the funds set aside in the event of an emergency. Not only so you can pay the bills, but also so you can take care of the family until you get back on your feet, and to ensure you can live the life you are accustomed to, during a time period you are not able to work for any reason or another. So, what is an emergency fund and why do you need one, and how do you build it up? These are a few of the areas we will touch on as you read through this post, if you are concerned for your family in such a situation.
Why You Need These Funds
You need to have an emergency fund set aside, and it should be for about six months. If you have an unexpected surgery or medical bills, you don’t have the cash to pay for it; with emergency funds in place, you are going to be able to pay for your bills, as well as the unexpected situation which occurs. Or, in an extremely trying period, you lose your job and are out of work for six months; how do you pay the bills, and take care of your family?
These are just a couple of reasons you are going to have to set up an emergency account, and reasons you are going to want to have cash set aside in the event an emergency does ensue. We do not plan for them, nor do we want them to occur; but, they do, and when they do, we usually do not know how to react to them. When you have a set amount of money set aside, you at least know you are going to be able to cover the costs which are tied to the emergency. So, it is one less thing you are going to have to worry about. If you have to go job hunting, you at least know your kids and spouse are taken care of, for the period you are out of work. Or , if you can’t work due to an injury, you at least know you have funds set aside to take care of the bills and expenses, until you are back on your feet, and can get back to working routinely. Emergency funds should be stocked and you should set aside at least six months of income in these funds if you have the opportunity to do so.
How Much Is Enough
Well, it differs. You want to have the fixed income covered (this is how much you are earning with your employer routinely for the work you do). You want to make sure you have six months of income set aside, so that you can take care of the bills for the duration of time you are out of work. In addition to your fixed income, you also want to account for variable income you might earn. This can be residual income, investment income, or other saving sources you have been receiving routinely. If you have these funds coming in on a regular basis, then you are going to want to account for this as well when you are developing your emergency funds and as you are planning how much is enough for you to store away, in the funds or account you are setting up. You need to consider all streams of income, so you can plan accordingly, so you can begin to save, and to ensure you are going to have sufficient cash on hand, if an emergency does occur, and you need to use the saved funds for any set period of time for up to six months.
Building Your Fund
There are a number of ways to go about doing this as well. For example, you can take a small amount from your paycheck which is discretionary or you spend foolishly, and you can start to place this in the funds. Not only will this add up over time, it is also a good way for you to learn about saving, and planning for your retirement going forward, as opposed to spending some of the extra income you are making, which does not go towards paying the bills for your family.
You can also try to get a side job or second income. Even if this is a small amount you earn each month, it is a simple way for you to start to set funds aside, and for you to begin to set up the emergency fund you are setting up for your family. You can also rely on residual income, or streams of income, and you can place a portion of these funds in the emergency funds on a routine basis.
Every family is going to go a different route, so plan accordingly as you are deciding how to spend, how to save, and where to go when you are putting away emergency funds, if and when an emergency does occur, and you are not able to work for any set period of time because of it.
You don’t want it to occur, and you do not want to have to rely on the cash, but if you do, you want the funds to be there. So, when you are dealing with an emergency situation, these are a few of the ways in which you can go about planning for an emergency, and setting aside the funds to add to the emergency account you are setting up for your family.