How To Budget For Emergencies
Need to Budget For Emergency Funds? Yes.
Emergency funds are critical to have on hand for financial
security. Having emergency funds provides you with financial
resources to resort to and depend on when an emergency arises:
such as getting sick and running up huge medical bills, or
unexpected home and car repairs.
Without emergency funds, you'll find yourself running up huge
credit card debts that could take several years to repay. And of
course you'll be paying much more with the interest those cards
generally add.
However by simply putting an extra thirty to fifty dollars every
month in an individual "emergency savings account" you'll be in
a much better position financially to deal with any emergencies
that might arrive. It's easier to put this money away regularly
if you think of it as an additional household expense, or bill.
Require that it be paid on time each month, to ensure you'll
have the funds on hand when needed.
This extra emergency fund money should be entered into your
overall household budget like any other bill you have, and if
need be it can even be - and you have online banking - set the
payment up to automatically be moved to a savings or mutual fund
account every month. This way you won't forget about it, or be
tempted to skip it when money is tight.
Ideally, your emergency fund account should hold enough cash at
all times to cover at least three months worth of living
expenses. Most of us can't pull three months worth of money out
of our budget all at once, so the only way to effectively do
this is build up to it slowly over time. Also be sure to never
touch it for anything other than actual emergencies.
Keeping an emergency fund isn't the same as investing. You won't
likely make any significant interest or profit from it. Keep in
mind though, that this fund isn't meant to be an investment.
Instead, it's insurance in a sense. It's there solely to take
care of you and/or your family if an emergency comes up. And
it's there to be immediately accessible if the need ever arises.
In order to successfully put away money for emergencies of
course, you'll need to first know where your money currently
get's spent. So you'll need a solid budget. Figure out how much
money you have coming in every month - spendable money, not
gross. Then figure out the cost of every single expenditure you
have. If some things change each month, such as utility bills,
estimate or average that expenditure.
Once you know how much you must spend on the neccessities in
your life - including putting aside something for emergencies -
you'll be much better equipped to keep up with it all. If money
is tight though, don't take from your emergency fund just to
have fun money. Instead, curb your extra spending. It won't hurt
to eat at home an extra evening each week if that means you and
your family will be taken care of when emergencies arise.
So, start your emergency fund today, no matter how small the
contributions might look. It all adds up over time and you'll be
extremely happy you did this should any emergencies come up.