Having some money in the bank is always a comfort, but in the current economic climate, having an emergency fund is not just a luxury, it is a necessity. Should the worst happen, many people plan on using their credit card or taking out a car title loan or a payday loan. While this approach can solve the immediate cash flow problem, it can actually make things worse in the longer term. It is therefore better to be prepared for any change in circumstances that comes along, or for any urgent need for funds.
The general consensus of opinion is that ideally, between three and six months worth of essential living costs should be set aside. That may sound like a large sum of money but an emergency fund is there to cover even the worst case scenario. For many people, this would be losing their job and finding, applying and securing alternative employment could feasibly take several months. During this time there would be negligible money coming into the house, making even the cheapest loans difficult to repay.
There is no denying that saving up this amount of money takes commitment and it certainly won’t happen overnight. Rather than focus on the end goal, a good way to get started is to set small goals that are far more
The best way to save is by putting some money away regularly, no matter how small. Waiting until you have some spare cash is a surefire way of never starting to save. It can be surprising how quickly the gap that the money being set aside creates is overcome and within a very short period of time, that money will not be missed. Slowly increasing the money being saved is a good way to ease into saving without the shock of losing a big chunk of money in a short time.
It is also possible to save in different ways and an easy way to boost savings can be a jar at home for loose change, or to place a matching amount of money in every time a lottery ticket or scratchcard is bought. Anyone saving money for any reason wants to make the most of their cash and an account offering a competitive rate of interest is the best place.
However, as the money is designed for emergency access, it is important not to tie it up so that it is not easily retrievable in the event of a crisis. Stocks and shares are also unsuitable due to the risk of the value dropping. The knowledge of having an emergency fund in the bank can bring real peace of mind, even if it has not yet quite reached the three to six month level.
The idea is not to dip into but for those months when a purchase having to put onto paying off the interest for the emergency cash unless there is a dire need, large expense crops up, it can prevent the the credit card. Even the cheapest loans mean several months to come.
For those who really find saving a chore, a useful tip can be to allow a small reward once savings reach a certain level. Nothing that will break the bank obviously, but a special treat to look forward to can be a powerful motivator to keep going when things are tough.