Emergency funds: don't live life without it
What exactly is an emergency fund? It is a stash of money put aside to cover financial setbacks and you shouldn’t live life without having one in place.
The goal of an emergency fund is to help you make it through any financial emergencies that come your way. Even though you cannot control the actual emergency, you will be able to call the shots on how you want to live with regard to the unplanned negative event.
There are two types of emergency funds that put you in the driver’s seat: short-term and long-term. For the short-term emergency fund, you’ll possess cash on-hand to replace a flat tyre or pay your expenses if you find yourself without income for period of time. Your short-term emergency fund should amount to about three to six months of your living expenses.
For your long-term emergency fund, this is where you save for decades. Saving for decades, which seems almost impossible, can be done.
You can save for decades for a lifetime of security.
Once you attain a short-term emergency fund — as daunting as it may seem — promptly start investing in your long-term emergency fund, because when you accumulate enough funds, you are protected from any catastrophic emergency.
Not only will you be able to pay for that tyre and protect yourself from a short-term unemployment, you’ll be able to weather long-term scenarios.
You can’t control the adversity, but you can mitigate the adversity through preparation. Having a long-term emergency fund gives you the financial freedom to handle any type of sudden emergency and its consequences.
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Possess the discipline and the tenacity to put away money for a rainy day, and when that rainy day comes, you’ll be grateful. When adversity strikes, nobody ever complains that they saved too much money.
The COVID-19 pandemic is a perfect example of the importance of having short-term and long-term emergency funds. Workers have been stood down or terminated from their jobs. Businesses have closed. People have fallen critically ill.
You can utilize planning, strategy, and tactics to take control of your finances.
· Discipline: You need to save part of your income on a regular schedule.
· Perseverance: Stick with your plan to reach your goal, even during tight financial times.
· Prioritize: If you don’t stick to a regimented savings schedule, you’ll find excuses not to save money and spend it instead, creating financial disaster. A good motto: Pay yourself first.
· Impulse control: Instead of spending money without thought, set a pre-set amount like $25 and for everything over that amount, wait a self-imposed 24 hours. If you don’t buy the item, put that money in the bank. Remember — your money looks better in the bank than a picture of a $100 steak you had in your Instagram wall.
· Be mindful: A seemingly small expenditure today means you will have much less money in the future. Each $1 saved that is invested at a 7% return will double in value every ten years. If you save $1000 rather than spend it, that money will grow to $2000 in 10 years, $4000 in 20 years, and $8000 in 30 years.
We have talked about unforeseen emergencies. What about emergencies in the more distant future such as forced, earlier-than-planned retirement?
Start somewhere. Start now. Seize the opportunity. Empower yourself with knowledge.
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This article via forbes does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.