While every individual should be financially prepared to deal with the unexpected, many simply overlook the essentiality of having an emergency fund. An emergency fund is a reserve that helps people access it instantly if any emergency takes place. The future is unpredictable and the reality is that there are ups and downs in every human life.
This is why it makes sense to get geared for rainy days. Scott Tominaga is a well-known professional who focuses on the financial and wealth management domain. He has offered his dedicated services in the banking business, personal finance, wealth management, stock trading, etc. As of now, he offers advisory for finance and wealth management for individual and business enterprises.
The Significance of Having an Emergency Fund
The objective of building an emergency fund is to secure financial health as it works as a buffer to cope with unexpected incidences of life like job loss, injury, illness, business loss, etc. Building the fund will help individuals continue to pay their regular expenses, pay bills, and thereby avoid debt. Regardless of one’s income level, setting aside a sum of money every month can help in building up this essential fund that offers mental peace considering the readiness to face such incidences.
The Quantum of Funds An Individual Should Have for Emergency
A thumb rule is to save 3-6 months of one’s expenses in the emergency fund. Despite this may seem a huge amount, simply by start saving $500, people can grow up a lump sum emergency fund over time. However, for the breadwinners, the quantum of the fund should be at least 9 months of their family expenses.
Steps to Build an Emergency Fund
- First of all, individuals should have a budget to figure out their income vs expenses. They can use budget apps as it helps calculate income as well as expenditure instantly enabling them to get an idea of their financial situation. Doing so will help them find the areas where they can cut back the expenses that help in building this special fund.
- Once having a crystal-clear impression of the cash flow and expenses, people can set a goal. For example, a person intends to grow an emergency fund of $15,000 i.e. 3 months of his/her annual income. So, initially, the individual can start keeping aside $500 every month. Meanwhile, if their income level grows, they should consider saving more so that the desired fund gets ready faster.
- According to Scott Tominaga, a great advantage of creating a budget is that it helps identify the areas where they are spending more and cut back on expenditures. For example, simply by minimizing the expenses of dining out or by availing of public transport, a person can save a considerable amount every month.
- Apart from this, individuals should think of how to increase their income. For this, they can get involved in a part-time job or freelance work from home and thus increase their source of income. for those having a property, using it as a rental home can be a great way to earn passive income.
All this will contribute to the growth of the emergency fund and help people gain peace of mind.