You probably know that saving is better than not saving. But what’s the difference between a savings account and an emergency fund? When can you get money out of your emergency account? And how can you save more?
We’ll answer all these questions in the article below. We’ll give you plenty of examples as well as quick solutions to build your emergency fund even more. Read along!
What Is An Emergency Fund?
You probably figured that an emergency fund is a fund for emergencies. It’s always good to put some money aside so that you can deal with unforeseen situations. You never know when you might have an accident or lose your job because life is filled with unfortunate events.
That’s why it’s always good to plan ahead by getting an emergency fund. These savings will keep you from financial paralysis even when you’re dealing with a personal crisis.
Here are other reasons to consider an emergency fund:
- You want to bring your debt to zero. An emergency fund can prevent incurring more debt when unanticipated problems arise. As such, you can repay your loans quickly.
- You have just one source of income. And the truth is you never know when you might lose it.
- You’re working on a contract basis or you’re a freelancer. These jobs are flexible, but they’re also risky. You never know if you’ll always be in demand, and you also have to plan for low-income periods.
- You have a chronic illness. Therefore, you have recurring medical bills that may not be covered by your insurance company entirely. In this case, your emergency fund allows you to rest assured that your medical needs are met in case of an emergency.
- You own a home. In this case, you have to plan for routine maintenance as well as unforeseen repairs, which can get fairly expensive. Keep your home safe and 100% livable with your emergency fund.
- You live in another country. If you’re abroad, you might be forced to come back without notice because of a crisis or losing your job. So, get your emergency money ready for this situation.
- You want to be proactive. Even if there’s no emergency per se, you still have to plan for your long-term needs. You might need a bigger car, money for your kids’ schooling, and even some retirement savings. An emergency fund helps you achieve all your goals because you can’t drain it as you would a common savings account.
When Should I Use My Emergency Fund?
We can’t stress this issue enough: only when it’s an emergency. A holiday, a bigger wedding, or new couch pillows don’t qualify even if you might think you do.
Here’s how you can define an emergency:
- It’s an urgent financial crisis. Think of things like medical bills or emergency repairs. Now let’s delve into some nuances. For instance, don’t buy a new mattress from your emergency fund, unless you have chronic back pain that can become worse. Also, don’t use your emergency fund for a new costume unless it’s the only way to secure your job.
- You can’t pay your debt otherwise. Use your emergency fund to pay for the debt you can’t otherwise repay, especially if your debt will increase otherwise. For instance, consider a credit card debt or a secured loan where you’re in danger of losing your assets.
- You need to improve your credit rating ASAP. If you want to get a better loan, you can use some of your emergency cash to repay your debts.
- You’re in crisis. Think about losing your job, having an accident, or losing your home in a flood or landslide. All these cases allow you to use your emergency fund.
With that in mind, here are other tips to remember:
- Don’t forget to replenish your emergency fund once the crisis is over. Make sure you have at least the necessary amount for six months in your fund.
- You should never use the whole amount in your fund unless it’s a life-or-death situation. That’s because emergencies usually never come alone.
How Do I Get An Emergency Fund?
It’s easy to get an emergency fund if you figure out the amount you need and you pay the monthly instalments.
1. How Much Do I Need?
The rule of thumb is that your emergency fund should have you covered for six months.
As such, add your essential monthly expenses, such as food, utilities, rent, gas, and phone bills. Multiply these by six and you obtain the minimum amount you need in your emergency account.
However, if you work on a contract basis or are a freelancer, your emergency fund should help you pay these expenses for 12 months.
2. How Much Money Do I Save?
The answer to this question depends on how much money you want to save and how quickly you want to do that.
Keep in mind that the best time to start building your emergency fund is as early as possible. If you’re young and you have a good salary, don’t postpone it.
- You want to save more money fast. Subtract your necessary expenses, such as utilities and food, from your monthly salary. You should be left with around half your income. Deposit this amount into your emergency fund.
- You want to save money steadily. Choose an amount of your salary, say 10-20% and deposit that into your emergency fund. This option is best if you have secondary income sources apart from your job.
Regardless of the option you choose, take the tips below into account as well:
- Keep your emergency fund in liquidity. Don’t tie your money into stock investments even if these are profitable because then you can’t redraw your money in case of an emergency. If you want to invest your assets, ensure you still have enough liquidity in your emergency fund that you can access quickly.
- Don’t cheat. Your emergency fund is for real emergencies, not impulse buys. Try to be as disciplined as possible when it comes to your withdrawals.
- Get a savings account. If you want a fancy trip or a bigger TV, use this savings account to make life more pleasurable. This strategy will help you keep your emergency fund for severe issues that affect your life.
3. How Can I Save So Much Money?
The first step is to get to the bottom of how much you need to survive each month. Add all your expenses, and don’t forget your current loans.
The problem is you might not be able to put the whole sum for six months aside from the get-go. That’s ok, it happens to a lot of people. Here’s what you can do:
- Sell something you don’t need, such as a chair, or the toys your kids aren’t using anymore.
- Get a part-time job or one-time contracts. Maybe it’s time to sell those DIY learning towers you make or offer to walk your neighbours’ dogs.
- Cut unnecessary things from your budget, such as sweets, cigarettes, or eating out.
- Keep the change. Each time you’re breaking a larger bill put the change into a jar. When the jar is full, put all your money into your account. If you’re not using cash, use a mobile app to make savings and transfer the money automatically into your emergency fund.
- Calculate what you can save each month. Then, opt for an automatic bank transfer to avoid using this money for something else.
- Keep your tax return. If you have tax returns, you have a shot at getting yours transferred into your emergency fund each year by April 30th. So, when you’re filing for this tax return, ask for this sum to be transferred straight into your emergency find.
- Evaluate and plan better. Monitor your emergency account so that you can keep track of your savings. This strategy allows you to make the necessary adjustments, and ultimately to add more money. You should be very strict about monitoring your accounts, especially as you’re crossing an expensive situation in your life like a wedding.
- Get a personal loan. If you used all the money in your emergency account or you can’t seem to save enough, you can always consider a personal loan from an authorised moneylender.
Need More Info On How To Develop Your Emergency Fund? Contact Intime Advance
As we explained above, you can face various situations that require you to use all your emergency funds. Besides, you may have problems saving the necessary amount in your emergency fund from the get-go.
Remember that it’s not wise to leave your emergency account empty because, sadly, emergencies can strike again and again.
We at Intime Advance can help you with our customisable and low-rate personal loans so that you can replenish your emergency account. We offer you fast liquidity and personalised advice so that you can navigate through all your financial crises.
We’re a popular moneylender agency in Malaysia because we avoid extended bureaucracy. Firstly, we have a two-step application process so that you can have your money by the end of the day. Secondly, we don’t have rigid loan requirements such as a perfect credit score.
Remember that our application process lasts under 5 minutes, and we offer you increased revenues with rates as low as 1%.
Avoid financial instability, accumulating debt, and the fear of not being able to survive in case of an emergency. We’re here to help and it’ll only take you a few minutes.