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Image courtesy of
http://blog.fcfinancial.com.au/bid/
384252/Emergency-Funds |
Do I need it? A
simple answer to that question is YES.
Though you make lots of money, or your salary is always
dependable and enough for you alone or your whole family – YOU need an
EMERGENCY FUND.
First let me define what is emergency fund. Emergency Fund is saved up money you keep for
unforeseen, sudden and emergency purposes.
It is the type of money you only keep for that purpose alone, and not to
be used for recreational reasons like buying your new smartphone, tablet,
television or vacations. It is for that
emergency purpose that I advise you to keep it somewhere accessible, but not
where you can be tempted to withdraw from.
My advice is to keep it in a saving account or a passbook account or a
time-deposit. I even discourage putting
it into an investment tool like stocks, UITF or Mutual Funds because it has to
be readily accessible anytime. If you
lose money because the market dipped, your emergency fund is at risk.
So why do you need it?
There is no way that you can foresee all events in your life. All good things and bad things happen. Life can screw you up the least you expect it
to. These life events may happen that
may need that kind of fund:
1.
Abrupt cease of employment (ranging from
quitting it to being laid off. Remember management
doesn’t tell anybody the company situation going bad and you being laid off
months before. It just hits you like a
lightning);
2.
Family member gets to an accident or gets
hospitalized (your child, your spouse, your parents);
3.
Family car breaking down (this can be a major
expense if your car gets into an accident or major repair);
4.
Your house needs repair.
So, how much do you need to build this fund? It is advisable to save 3x to 6x of you monthly expenses.
This big amount of money will hopefully help you bounce back after a
setback. This is enough money to look
for another job, help a family member, some minor repairs for your car or your
house.
But please don’t dip your hand on that fund for anything
else. Your shopping, replacing or buying
a new car, new gadgets are not emergencies.
Hopefully, when you build that fund a payday at a time and
finish it building it up, you may learn to save more after it. After all, it will become a habit. And a habit of saving will make you more
financially secured and stable.
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