You never know when a crisis will come knocking on your door. An accident, a health crisis, a job loss — just anything can happen and, therefore, it's a necessity to have an emergency fund. Considering the scale at which the novel coronavirus pandemic has caused problems, it's all the more important to have a buffer fund so that you don't add to the debt you might already owe. Additionally, an emergency fund always gives you a sense of assurance. Its presence makes you believe that you can handle an emergency should it arise out of nowhere.
And if you haven't started it already, let us assure you that it's the easiest fund to manage with some patience and determination.
How much is enough?
The first question that comes to everyone's mind is how much should be enough for an emergency fund. Since it's a fund only to be used in an extreme situation, it can be somewhere between three to six months, at least. However, if you are a family person, you could think of preparing for at least a year.
Start with a small contribution to the fund.
It's not important to contribute a lot of money to the fund. However, it's critical that we contribute reasonable money but regularly. A small portion of money set aside every month from your salary can do wonders over a period of time. A separate account can be opened for it.
Emergency funds should be the priority.
Once we start earning, our objective is to ensure we multiply the money. Hence, we look for investments that help us save money on taxes and secure our future. However, an emergency fund should be the priority of every individual, for it can come in handy at just any moment.
Remember, an emergency fund is not your piggy bank.
Once you start building an emergency fund, make sure you don't withdraw money from it for your incidental expenses. Yes, there are times we think we won't need money, but we never know when we might. Therefore, guard this fund and increase the contribution to this account as and when your salary increases.