Life brings about a lot of twists and turns, which, more often than not, spell out unexpected expenses. Contrary to what most people think, it’s not just enough to have a savings plan, but an emergency fund, too. Building your emergency fund now is the appropriate safety net you should be building for yourself in case something urgent comes up—and you don’t need to dip into your hard-earned savings for it.
Building it is pretty much similar to your savings account. The main difference would be your goal. Usually, with a regular savings account, you’re aiming to buy something specific, such as a car or a gadget. With your emergency fund, your goal is to set aside money for a rainy day.
It also varies on your lifestyle. First, you should consider your recurring expenses, such as housing, food, utilities, and healthcare. Ideally, you should be able to save a few months’ worth of these expenses should an untoward event happen, such as losing a job. You should also be able to factor in other emergencies and consider how this can impact your overall funds.
When it comes to storing your emergency fund, it’s better if you can keep it in a separate account meant solely for emergencies. That way, you won’t be tempted to dip into it when you see something you want to buy.
If you want to learn more about building your emergency fund, start by studying the infographic below. You’ll get a better picture of how much you need, where you should store it, and what instances you can use the money for.
