Imagine you fall ill suddenly and have to visit a doctor. He suspects some serious ailment and suggests you get a few medical tests done. While the tests are necessary to identify the cause of your sudden illness, they are also expensive. It's the end of the month and you don't have enough money in your account to pay for your medical tests and you don't want to borrow money from your parents or your friends.
What could help you in such a situation?
An emergency fund.
By saving up for your emergencies on Wizely, you can avoid falling into a debt trap when a sudden expense pops up. Saving small amounts on a consistent basis can help you build a robust emergency fund that can protect you at the right time.
Emergency Fund - What’s Required?
While a few say having two month’s salary in your savings account as ideal, multiple experienced financial advisors recommend you maintain an emergency savings reserve big enough to cover three to six months of household expenses. While this is great, achieving it takes some self-sacrifice, discipline and effort. The first step is figuring out just how much you spend each month.
Emergency Fund - Just How Much?
The amount of money needed to invest in an emergency fund is quite high, however, we live in times with uncertain economic climates. Unemployment is right around the corner at any given second and corporate loyalty is a figment of the past, at the worst possible moment. Likewise, emergencies such as disabilities and sudden illnesses, travel and car maintenance, could be expensive and are almost never planned for or welcomed. Financial planning becomes crucial in these unfortunate and unpredictable times.
While it is safe to say we don’t have an extra 3 months income lying around, everything is relative. Saving even 6 months’ expenses is a small number versus the amount needed to be saved for retirement; there’s not a savvy investor out there who looks down on the idea of saving so much money that they never work again.
One needs to realise emergency funds aren’t for slush funds for large entertainment or leisure purposes. A new 4K resolution TV isn’t the qualification for an emergency, even when the old TV breaks down.
To ensure your emergency fund is available when needed, you must identify true emergencies and this calls for some serious and effective financial management. These are situations that need some kind of immediate action which could affect your long-term wellbeing or impact an important asset’s viability like the home or car.
Tips to Build Your Emergency Fund
Save Your Spare Change
Get your entire family to empty out their change from their pockets into a savings jar by the end of the day. These should include all notes and coins. At the end of the month, take the money in your jar and place it in your emergency fund. Use the technique again to boost the fund, but don’t rely on it overtly in achieving the goal.
Pad the Fund Using Dividend Earnings
Don’t view dividend stocks as just stocks for income investing. They are highly recommended in padding the emergency fund investment. Build your portfolio using dividend stocks, and deposit the dividends in the emergency fund. It is not the fastest way to fund the emergency account, however, so ensure you’re dipping your toes in other ponds as well.
Use ‘Wasted’ Money
A few estimates highlight each household wastes upto 10% of their income every month. Seek out these wastage in your budget, like over-ordering at restaurants or leaving the lights on when leaving your rooms. Plug the leaks and use this saved money to add into your emergency fund.
Turn on Auto-Transfers
Schedule regular transfers from your salary to your savings account or emergency fund using your bank’s automated savings tools. You could also have a portion of the pay check diverted to the emergency fund. This way you don’t need to remember to trigger this each month.
Celebrate Milestones Along the Way!
Never splurge big, however when milestones are met you must reward yourself. This could be a night at the movies or a new video game. Track your goals, mark achievements and remember it is a long way to the fund. But you’re on the right track.
Do you have an emergency fund? How else would you strategize to save money? What circumstances force you to use the funds?
Once you identify what a true emergency is you will use your money Wizely!