An Emergency fund is often what most people desire to have, but have no idea where to start. What exactly is an Emergency fund? An Emergency fund is money set aside for you to have in order to handle unexpected situations that life can throw at you. Unfortunately a budget cannot always prepare you for financial stability during tough times and can often lead to some people turning to payday loans, credit cards or payment plans just to make ends meet.
Although our wants often overcome our needs when it comes to spending, an emergency fund should be used for its prime purpose..EMERGENCIES! Not sure what qualifies as an Emergency? Some examples would be:
- Loss of Job
- Home repairs
- Unexpected Injury resulting in Medical Bills
- Car Issues
Think of your emergency fund as a full-proof way of steering clear of “Murphy’s Law”.
When it comes to your “Oh Crap” fund the one question that always seems to outshine the rest is “How much do I need?” as cliche as the answer may be, it ALL depends. Before determining an amount to set aside you should first weigh out your current finances and bills and see exactly how much you have financially coming in monthly. A general rule of thumb is to have at least 3-6 months of living expenses as a solid base. If that seems a bit high, no need to panic. Another way to get started is to put away a percentage per pay period that can be determined by your monthly income.
The use of credit cards or payday loans isn’t listed as the worse solution, but with roaring interest rates and often times hidden fees the burden of credit card debt or payday loan debt often times isn’t worth it. Building an Emergency fund is a great stepping stone towards a healthy and stress-free financial life. If ever debt relief is needed always feel free to speak to one of our Financial Specialists at Solid Ground Financial!
