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Many may question the necessity of an emergency fund. After all, is it really a necessity? How do I create an emergency fund? Does it need to be a huge amount?
Here are some ideas and suggestions that should help answer these questions and more.
Is an Emergency Fund Really Necessary?
Generally speaking, yes, an emergency fund is necessary. What form it takes can vary, but it is a good idea to have an emergency fund. Such a fund can help you avoid high-interest debt, and it helps reduce stress. After all, life is full of surprises – many of them sudden and not good – and having that “cushion” can help you feel ready and more in control.
How Do I Create an Emergency Fund?
First, determine your expenses. Look at three to six months’ worth of living costs and count on saving that much in a fund. This can help you keep your standard of living for a time if you lose your job, or it can cover a large expense such as vehicle repair or unexpected home repairs.
Determine how long it will take you to save that much and how much you have to take out of your paycheck each month to reach that goal.
Once you’ve determined how much you need to save and how long it will take to save it, it’s a good idea to train yourself to pay your tithes first, then put payments into the emergency fund before you pay for anything else.
If you can allocate money to your savings account by automatic deduction, go for it. You might not miss it as much if you don’t see it.
No Matter Your Income You Can Save Something
Even if you have low income, you can set aside something each month. Try saving a percentage of your income, such as 5 or 10 percent. It may take you longer to have 3 – 6 months of living expenses saved, but it will accumulate over time.
Does It Have to Be 3 – 6 Months of Savings?
In short, no. Your emergency fund does not have to be 3 – 6 months of living expense – but it certainly should be enough to cover unexpected expenses. To determine the size of your fund, consider what sorts of emergencies you’d want covered by the fund. Savings is an effective way to guard against emergencies putting a BIG dent in your financial stability.
Start small…just start…today!
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