The Importance Of An Emergency Savings
By their definition, emergencies are unpredictable. They will threaten your financial health when they do happen. If you are not prepared, a sudden illness or injury, abrupt job loss, or even a surprise home or car repair will devastate the day-to-day cash flow for your family. It’s no secret that having emergency funds set aside are extremely helpful and useful should an event arise that you need them. Emergency savings can significantly help you recover from unexpected financial setbacks throughout life. They are the foundation of any solid personal budgets for financial matters. Having a cohesive emergency funds savings could be the difference between a minor hiccup in your finances and complete financial ruin.
Without a savings plan to assist you with unexpected bills, you may be forced to open up a new credit card or take out a loan that isn’t in your best interest. Having an emergency savings provides you with a security blanket to protect your assets and have peace of mind when unexpected bills hit. Your future self will be extremely pleased that you did should an unexpected need arise.
Your emergency savings should be set apart from your regular savings, if possible. The purpose is to use your emergency savings exclusively for expenses specifically associated with an unforeseen emergency. If you set a goal amount that will go into your savings account, you will know how much to build up to. This also helps you to know how much to add to replenish that account if you draw from the emergency fund. If you find that you actually need to take money out of this fund, it is best to start restoring it quickly.
Even though the amount of your savings account can differ depending on your lifestyle, monthly expenditures, wages and dependents, a general rule is to set away savings worth at least three to six months. For the first few weeks, the amount can seem overwhelming, but the plan is to save away a small amount every week to work up to that target amount. Based on your billing commitments, family needs, work security or other factors, this amount may change as you go along.
It’s encouraging to remember if you start saving now, if the next emergency happens, the money you are saving now will go a long way towards fulfilling your needs.
If you feel like you don’t have the extra cash to put away for an emergency savings after paying your bills, you may want to reevaluate your budget. Some may even argue that a budget is not valuable if you don’t have a plan in place should things go awry. Understanding why you need an emergency savings is truly imperative, especially in these uncertain times. If you need help with creating an emergency savings plan or want to learn more about bolstering up your savings, contact a financial advisor at SJK Wealth Management. We can help you find extra money that may exist already in your income to put away into an emergency savings.