An emergency fund is an essential financial reserve that acts as a safety net to encounter unpredictable events in life like medical emergencies, job loss, urgent household repairs, etc. According to Scott Tominaga, fitted with an established emergency fund offers great peace of mind and defends people from asking for credit to lead their lives, pay bills, and kid’s school fees without hassle and get back on their feet as the rainy days are over. Make sure to consider the following factors while forming an emergency fund.

Determine the Desired Amount

The basic step while creating an emergency fund is to figure out the size of the account that an individual actually needs. A popular guideline is to save enough enabling them to meet three to six months of basic living expenses. This typically includes expenses for paying rent or mortgage, utilities charges, food, insurance premiums, transport, tuition fees, and other regular bills. However, One’s unique situation may call for more or less savings. For example, people who have other dependents may need to set aside more funds while in a dual-income family, if one member has a stable job, a smaller buffer may be sufficient.

Start Small, but Be Regular

Saving a considerable amount of money all at once might seem quite impossible for many. But it does not mean an individual cannot start small. Start with something smaller which is easily achievable say between $500 and $1,000, and then increase it slowly with time. Establishing an automatic transfer is a good idea to transfer the money to the savings account without failing or having consistent contributions to it. It does not matter whether it is a small amount to contribute each time, but focus on making it regularly and before one knows it, the savings build over time.

Choose the Right Account

Since it is meant for emergency use, make sure to choose an account for creating the emergency fund, which can be easily accessible. According to Scott Tominaga, the best place to store the fund would be a high-yield savings account or a money market account, which usually allows liquidity and equally fetch a little interest. It is recommended not to put it into stocks or mutual funds because the value may drop when the fund is practically needed.

Never Use It for Non-Emergencies

An emergency fund is built to be used exclusively in emergencies, such as emergency health issues, loss of employment, unexpected repairing job of home or car, etc.  Under any circumstance, it should not be touched for non-essential activities like holidaying, buying fashion products, etc. Using an emergency fund for something else than an emergency leaves individuals vulnerable in a real situation without the cash to last.

Review and Adjust as Needed

After establishing the emergency fund, it’s worth reviewing it from time to time. As life circumstances are changeable, emergency funds should not remain the same. Increase savings goal, for example, as there is an increase in family size, people should make sure to adjust and enhance the fund to ensure they are duly covered.

To conclude, emergency funds constitute an essential component for financial stability while keeping prepared for rainy days. Make sure to consider the above factors to reach the savings goal seamlessly, establishing a solid ground to battle the risk of the unexpected with courage.