Keep one’s family prepared for economic hardship by starting an emergency cash fund for monetary crises. If someone loses his job or needs emergency surgery and can't work for a couple months, he needs a way to continue to support himself and his family.
Reasons for Emergency Cash
When a family encounters a financial emergency, they usually need access to funds immediately. Many times it's impossible to wait a long period of time after an economic hardship to receive one’s money. Keeping liquid funds available is smart and necessary. If someone doesn’t have an emergency cash fund and needs money immediately after losing her job, she may have to go into debt using credit cards or taking out loans to cover basic expenses. This should be avoided if possible.
Amount of Emergency Funds and Ways to Save
It’s ideal that every household have three to nine months of living expenses available in an emergency cash fund. This way the family would prepared to support themselves in case of emergency for three to nine months. Each household is different in the amount that is needed. To figure out the exact amount needed calculate all living expenses for one month including rent, mortgage payments, bills, credit card payments and food costs. One should save three to nine times that amount in case of financial emergency. Many people have a difficult time finding ways to save money; however, there are many ways that people can save money and stay out of debt.
Storing Emergency Cash
The best place to store emergency cash is in a savings account, because it is easily transferable to a checking account and can be accessed immediately. Savers should not store their emergency cash fund in stocks or mutual funds, because the money could be lost. Keeping it in an account that can be accessed within a couple days without incurring penalties is the most ideal option.
Using Emergency Funds
Don’t use emergency funds for designer boots that are on sale, a family vacation or fancy dinners. Only use the money in the emergency fund for emergencies. Here is a list of examples of emergencies that can be considered for using emergency funds:
- Medical and dental expenses
- Death in the family
- Unemployment
- Natural Disasters
When someone uses money from his emergency cash fund, he should try to replenish it as soon as possible. This will help to reduce the possibility of debt in the future and increase financial stability.
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