iQuanti: Catching a punctured tire or taking your pet to the emergency vet can cost you money. And contingency reserves can make the difference between getting into debt due to unforeseen expenses and being easy to handle. If you thought about starting emergency fundhere are four reasons why you should have it.
What is an Emergency Fund?
The contingency fund is dedicated savings reserved for emergency use. For example, you can approach them to cover unexpected car repairs, emergency medical bills or job loss. A contingency fund has so many uses, and having one is crucial to ensuring a stable financial position. A good rule of thumb is to save three to six months of living costs, such as rent, food, and bills, in a rescue fund.
Why you should have an emergency fund
The rescue fund alleviates the financial stresses associated with crisis situations. Here are four important reasons why you should have an emergency fund:
1. You want to avoid incurring more debts
Often times, in an emergency or medical situation, people will look for credit cards, online loansor other sources of debt to cover the costs. But having an emergency fund means you can use the cash you already have on hand. Also, since you don’t have to pay interest, you’ll actually be saving money instead of incurring debt to cover your emergency expenses.
2. You need a safety net if you leave work
If you lose your job or choose to leave voluntarily, the emergency fund may give you time to pick a new job that you really like. Not setting these funds aside means you may have to get the first item available. But the freedom and options associated with having an emergency fund mean you can choose what’s best for you, not what you need to do to pay for your next round of bills.
3. You are self-employed or have unstable income
If you run your own business or work on commission, your income may have an unpredictable schedule. A contingency fund can help you cover anything that may arise while you wait for more money. It also gives you the freedom to try new things in your business or switch to a different strategy without worrying about short-term financial consequences.
4. You support the family
Whenever you support yourself and don’t have that many responsibilities, having backup reserves may seem less important. But if you are supporting a family, it can make a much bigger difference.
As your family and responsibilities grow, so does your emergency fund. And setting that money aside can give you the peace of mind that you can look after your family and ensure their finances, no matter what comes your way.
The most important thing!
A rescue fund is a key component of any financial plan. And having one is crucial for those who have a fragile income, want to avoid getting into debt, seek freedom to work, or support their family. With the peace of mind that the contingency fund provides, you will be able to pursue bolder financial dreams with confidence.
Note: The information in this article is provided for informational purposes only. Consult a financial advisor about your financial situation.