Individuals may want to consider creating an emergency fund to prepare for unexpected financial shortfalls such as accidents and disasters.
While an emergency fund is a great asset to have, building one up can seem be quite intimidating for those who feel their current circumstances limit how much they can save for future unforeseen events. But with a bit of savvy financial planning, it can be easy to start saving for whatever the future brings.
The first step to creating an emergency fund is understanding that you don’t have to save a large amount immediately. Everyone is different and will therefore save different amounts of money.
Start working towards saving a small amount of money first e.g. $500 – $800. When you reach that amount, you can then set yourself an even higher goal of saving, perhaps $1000 – $1500.
Another way of looking at creating an emergency fund is to estimate three to six months’ worth of expenses and working towards saving that amount of money should the unexpected happen i.e. being made redundant.
Under no circumstances should individuals reach for their credit cards during an emergency. While a credit card can help you get out of a situation in the short-term, they can create even bigger debt problems in the long term. Getting yourself out of an emergency using cash if you have saved up over time is a much safer and smarter option.