In a world of uncertainties, securing yourself with emergency fund is priceless. To help you stay afloat on a rainy day, you’ll need a financial buffer, without relying on credit cards. Thus, saving for emergencies helps you cover large and unexpected expenses. Unexpected expenses include; unforeseen medical emergencies, car repairs, home repairs, and even job loss.
You may wonder when you have to dip into your emergency fund. Should you rethink your priorities, or fix everything around the budget to create space for your new expense? Also, is your new expense or emergency legitimate?
Of course, if you can fit around your budget, then that should be your very first step on your to-do list. If not, remember that there’s no shame in tapping into your emergency saving basket. Let’s dive into how you can wisely use your emergency saving without completely depleting it, by considering these three questions.
Is Your Emergency Expected
Well, Christmas happens every year, on 25th December. You also know about the semi-annual car insurance payment. Such are expenses you should consider budgeting ahead.
Unexpected scenarios include; Job loss which is the most costly, emergency medical expenses, home repair or replacement, or major car repairs. Avoid any temptation to use your savings for anything that’s expected such as routine doctor visits, weekly shopping, or back to school shopping.
How Urgent is Your Emergency
An emergency saving should be long-term security as opposed to instant gratification. You should be able to weigh what’s urgent and what can wait. An emergency such as a sudden move out of state is urgent, but how urgent is a mega sale of your favorite product at your favorite store? That can wait.
You should be able to practice patience whenever possible.
Is it Necessary
Most people assume to understand the difference between a need and a want. It gets a little blurry in trying to draw the line between the two. For instance, healthcare is important, but a weekend road trip isn’t necessary and you shouldn’t spend your emergency savings on it.
A case where you may need to upgrade your decent car is a want, but buying a car for transportation is a need.
How Can You Avoid Depleting Your Emergency Fund
Building an emergency saving takes time and effort. After foregoing luxuries and extras to weave your emergency savings basket, it can be tempting to dive into your account and spend your reserve cash completely and on unnecessary things. It can land you in problems if you’re unable to keep your paws off your savings.
The worst thing that can happen is depleting your savings. Let’s see the tricks that you can use to ensure you always have enough in your account.
Ensure you have a different account for other expenses. Money to cater for emergencies should only be used for that purpose. Consider getting another savings account for other plans. It’s an easy way to continuously grow your emergency savings account while planning for other goals.
Don’t make it easy to access the funds. Now that you’ve saved your emergency funds in a different account, you’re unlikely to use it for other missions. You may consider opening an online-only saving account to cater for your emergencies and link it to a brick and mortar bank. It’ll save you time as well as curtail needless withdrawals. The account earns a higher yield than other types of savings accounts, giving you a higher return on your cash.
Continue Adding Funds to Your Account
To hit your goal of three to six-month reserve calls for continued building of your emergency money. You don’t have to add much, but again, you don’t want a single emergency to wipe out your savings. Little emergency savings monthly increases the likelihood of enjoying a surplus after a huge withdrawal.
Understand What Emergency Means
It’s vital to be able to determine what should be regarded as an emergency and what’s not. An emergency is a situation you can’t put off until the end of a day or end month. You need a situation solved, and it should be done now. For such reasons, you’ll need instant cash to take care of the urgency.
An emergency saving is not a backup plan for when you want to ride in a posh car or go to high-end hotels. If you use your emergency savings for situations that can wait, you may end up having less for your emergencies.
You now have a helpful hint on how to wisely use your emergency funds. It’s time that you take an initiative into building it up to prepare for a true emergency. When saving, remember to draw a line between emergencies and everything else.
It’s also advisable that once you’ve hit your emergency savings target, open another savings account for not-very-urgent situations like car maintenance, clothing, and vacations. It helps you stay organized and able to achieve your different financial goals.