What’s Emergency Fund and Why It Is Necessary?

People earn to live their lives happily, or to spend on matters that makes them happy. However, they sometimes get confused about the extent to which they should spend money on enjoyment. They basically get worried about the emergency occasions. The simplest yet most effective way to get rid of such worries is indeed to have the emergency funds.

The concept of emergency fund, and why it’s different from insurances:

Emergency fund is simply an amount that is reserved to come handy during any adverse occasion of life. Be it about a financial crisis or health crisis, this amount should make the person relaxed at that time. People often think about insurance policies and all for such amounts. However, emergency fund is different as you don’t have any fixed amount to pay every month. You would always wish your emergency fund to attain the desired amount quickly as possible. Hence, you may reserve a bigger amount for a month in which you earned more, and something lesser in the month you earned comparatively little. Moreover, unlike insurance policy, there is no restriction regarding the time when you can withdraw the amount. At the same time, you may drag the entire amount and deposit elsewhere, which can pay you at a bigger interest.

The confusions of emergency fund:

As explained above, most people have the confusion in mind regarding the amount that can be perfect for such security concern. In fact, this confusion can be stated as a reason that many Americans don’t have any emergency amount. It’s a pretty confusing and unclear scenario at present regarding the emergency amount that they should have.

 Given below are some interesting statistics on this context.

  • According to statistics of a leading financial site, more than 65 percent Americans live without any emergency savings.
  • The most shocking statistics it states is that among the above 65%, most of they even had nothing as emergency amount when they were at their peak age of earning. It means they had not reserved anything as an emergency amount in between their age band of 35-50.
  • In fact, the statistics says that around half of Americans are not ready to save emergency amount of four hundred dollars per month.
  • Only more than 27% of Americans are saving their earning of more than 6 months as the emergency amount.

What the experts suggest?

The statistics presented above, indeed makes no conclusion regarding the amount that one should have for emergencies. Taking the suggestions of experts can be the perfect option in such occasions. According to financial experts, one should keep a minimum quarter year’s income as the emergency fund. Or in worst cases, one must try to reserve at least three months of their earning in a year. The best way would be to calculate the total amount thus becomes, and try to save that amount as per the situation demands.

For example, you may drag a little amount from your salary in a month in which the expenses are high, and comparatively more in a month that demands little expenses. Through the process, you can feel flexible about your financial responsibility, and the target can be achieved at an ease. And as mentioned above, it is much relaxed strategy than the insurances.

Why it’s necessary?

Having the desired emergency amount is not enough; one needs to be wise enough in using it as well. There come many circumstances when someone would love to have a financial support. For example, you started a business that demanded more patience from your side to deliver profits. Emergency funds can be of assistance in such situations. Those, living without an emergency amount can never ever dare to try something new. Even if they take help of the financial institutions like banks, they have to struggle hard for paying the debts or a financial aid that can support during those struggling days. Apart from this, everyone knows about the contemporary scenario of health crisis. You can’t really estimate any fixed amount for this. In short, one must have some emergency amounts that can encourage during the crunch occasions as explained above.

Relevance of emergency fund considering the contemporary volatile market scenario:

Emergency fund can be a life savior strategy for the Americans considering the contemporary financial scenarios. Everyone knows that the current policies make it tough for the foreign investors to invest in America. This is obvious to have some impact on creation of job opportunities. Not just the beginners, threats of job are also felt by the senior professionals. Things are always tough for the start-ups. However, having some emergency funds to back a person for at least three-four months could really be confidence boosting. It can be helpful for both job seekers and businessmen.

Conclusion

Though it may seem quite challenging to live below your means, you will most probably be happy by knowing that; you did nothing when those bad days arrive and the overall impact is minimal to your financial well-being. Focus more on changing your mindset. Bad phases come unnoticeable to anyone and everyone, working toward healthy financial status should be just as much a priority as looking after your present physical health.