Having an emergency fund is one of the best ways to safeguard your finances in case something unexpected happens. It’s a good saving habit that protects you and your family and provides great peace of mind.
If you want to start building one, it’s important that you know how and when to use one as well as choosing the right type of bank account and calculating how much constitutes a solid emergency fund for your needs.
There are many instances in which an emergency fund can be a lifesaver. A bad financial decision can put you in financial strain, so having a fund for emergencies can prevent you from taking money from places you shouldn’t in times of need, like credit cards or loans from family or friends.
What is an emergency fund?
Simply put, an emergency fund is when you set aside money for emergencies only, and by emergency, we mean something unexpected that requires taking immediate financial measures. It should not be used for planned purchases of any kind and certainly not for last minute holidays or dinners out.
With an emergency fund, you are buying peace of mind knowing that if something unexpected happens, you have a reliable fund to lessen the damage created by the emergency. It’s a safe pass to survive financially in case something bad happens.
What’s the right amount to start an emergency fund?
It all comes down to your own personal situation so it differs for each person. An emergency fund for a couple with five kids and a mortgage is not the same that the one a single man with no kids may need.
Some people get discouraged when they realize they can’t save as much as they would like to and they stop doing it – try not to make that mistake. Regardless of how much you are able to save, what’s important is to start building a good saving habit that will be of great help in the future.
A small emergency fund will help you with small emergencies and it’s important that you recognize the importance of it despite how much the fund contains. Remember that the point here is to learn to save and to avoid incurring in a much larger debt in the event of an emergency.
What constitutes an emergency?
There are many instances in which you may need to have an emergency fund available. Life is very unpredictable and what seems to be steady and reliable now, may not be in the future.
An emergency can be getting fired or having a major repair at home that can’t wait, a pet emergency, funeral costs in case a close relative suddenly dies, or needs care immediately. All of these can be seen as emergencies that otherwise will make you dip from other money sources, thus incurring in debt.
Where can I put my emergency fund?
The best option is a savings account that pays interest or money market accounts. It makes a lot of sense to use a separate account for your emergency fund, that way you avoid the temptation of taking money from it when it’s not an actual emergency.
Having an emergency fund is a great idea that will surely help you out when you least expect it, however, people may find it hard to come up with ways to boost income in order to build the fund faster. Despite this, there are ways to boost income that you may not be aware of.
Right now many people are filing claims against banks due to the PPI mess in which banks deliberately sold Payment Protection Insurances to people without their consent or when there was no need for PPI policies.
So far, more than £33 billion has been returned to their rightful owners and there are still thousands of mis-sold PPI cases waiting to be claimed.
You can quickly check here if you were also affected by this. If you were approved for a credit card, line of credit, mortgage or any type of loan in the past, chances are that there’s a missing PPI claim under your name.
The clock is ticking as the government has set August 29th, 2019 as the final day to file any claims. This is tax-free money you can use to start your emergency fund or to lower debt so you can start one in the future, don’t miss the opportunity and claim what is rightfully yours.