Do you understand the importance of setting aside money for an emergency? Do you have an emergency fund in place? Are you close to the age of retirement? Have you been working on a retirement plan? In the meantime, do you have an emergency fund in place if retirement is close? What is an emergency fund and why is it important? It is self-explanatory. An emergency fund is necessary for when you have emergencies. However, you don’t want to wait until you have an emergency. Instead, you have to save for an emergency. Many families are without such a fund.
The Ideal Situation
In an ideal situation, your fund should be saved in a separate bank account so that you cannot touch it. You could work out with the financial institution to withdraw a certain amount from your salary to go directly into your emergency account. It is the best option so that you don’t have to interact with that saving account. This is especially true if you are not disciplined when it comes to money.
The Emergency Encounters
An emergency fund is essential for when you get sick, have a loved one die or to take care of your living expenses while you hunt for a new job to replace your income. When you have an emergency fund and find yourself in an emergency situation, you don’t have to touch your investment portfolio that you will need for retirement. Having cash on hand will give you more viable options to stay financially safe. Of course, you can opt for a title loan Ohio offers, if you are in a bind.
How much do you exactly need to put into your emergency fund? This is the question that so many people want answers for. Many financial experts think that having three months worth of expenses is enough to give you a cushion. Some say six months and others say nine months. Let’s look at them all.
It is difficult to measure this type of savings in dollar amount. Therefore, the safest way is to add up your living expenses and save the total amount for a rainy day. This is true for the person who is reasonably healthy, without any dependents and has held down a full-time job for at least five years. If this person were to lose his or her job, then there is enough cushioning until the next job.
If you live in a family where the income is from both spouses and you have dependents, you probably have to consider six months of living expenses in an emergency fund. The same is true for someone that works only off commission. However, it would be wise to look closely at your overhead and monthly expenses to come up with the right amount. When you are calculating your expenses, be sure to include all debt payments that you have to make on a monthly basis.
If you live in a single income home and anyone in your family is approaching retirement or have health issues, you need about nine months of living expenses saved in your emergency fund. While this may sound like it is a lot of money, it really isn’t. One hospitalization can wipe out your savings. Be mindful of this. So, if you can put more into your fund, by all means, do so.