Emergency Savings And Its Significance
Even if you are the most exceptional planner, saver, or even the best in money management, you can never know what the future might bring. A sudden car wreck, illness, unemployment, and a rough patch in your life may come without you perceiving.
Aside from that, don't underestimate the power of the saying, "Expect the unexpected." So please, don't forget to include your emergency savings in your finances.
In our life, everything will get better until it's not. Also, unwanted circumstances usually appear when we least expect them or when life's at its peak. For instance, the car broke, a sudden leak in the roof or you got into an accident (We hope not!) and ended up in the hospital with a massive bill to pay.
And worst case scenario, even if you think it's impossible, you could still lose your job in various reasons, the company might downsize staffs of they found someone better than you for your position. But if you're confident because you own a business, bankruptcy is around the corner, waiting to take its shot at you. Even if you worked hard for your achievements, life has its way to take it all out if it wants to.
It might sound bothersome to store separately for emergency saving, but it can get you through your toughest times in life, pay those unexpected bills, and help you to start all over again.
Preferably, you might want to have emergency savings that can at least cover three to six months of necessary living expenses. But you can save more than that, that's much better. In this way, you don't have to worry for any unplanned bill or short span of unemployment.
Furthermore, essential expenses are all about your primary needs, such as rent or mortgage payment, fuel for your vehicle, food, electricity, medical care, and the list goes on the things you can't cut out or live without them.
Now, in calculating the amount of emergency savings you should have at all times, assess how much you spend each month on essentials. Then, multiply it by three, six, or anywhere in between.
If you're having a hard time choosing the range of your savings, you might want to think of your other expenses and obligations. For example, if you own a car or a home, or maybe both and you are supporting someone, you might want to stick on the higher end of the savings. On the other hand, if you are single, no car or a home to maintain, and you don't support anyone financially, you can go to the lower end of the range and have emergency savings for at least three months.
Moreover, always remember to tuck your emergency fund in the bank, where it can stay as cash. And do not invest the savings because you never know when you might need it. You don't want to end up losing access to money that you save for an emergency.
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