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Why an Emergency Fund is Important

Keep your personal finance in order is not an easy task, financial disasters can happen to anyone. Sometimes any emergency can ruin your budget in such a way that it takes several months to get things back in order.

To help prevent emergency expenses or other unexpected situations from ruining your personal finances, you need to establish a emergency fund. An emergency fund is basically a savings that is used only in an emergency.Emergency Fund

The idea of ​​an emergency fund is basically to help prepare for extreme situations like the loss of a job. An emergency fund should ideally be for an amount that allows you to live for at least three months if for any reason you lose income.

In addition, an emergency fund can also be something to draw on in the event of an unexpected expense. The point is, you have that extra money if an important need arises that does not fit into the budget.

An emergency fund is not a savings account that you can use to make special purchases. It is important to understand that it should only be used in emergency situations.

Make a budget

To start creating your emergency fund you need to establish a budget. This will help you learn about your expenses and help you establish the amount of the emergency fund.

A budget will also help you decide how much money you can put into the fund each month. Be honest with your budget.

Find out how much you need

Analyzing your budget you will be able to realize the amount for which you must establish your emergency fund. You want to make sure that the fund would allow you to live for at least three months.

Of course, you can feel free to save above that amount, but setting a three-month spending goal is a good start. Always remember that when you take money from this account you must replace that amount back.

When establishing the amount to save, you decide whether to consider certain expenses as unnecessary in cases of emergency, such as going out to eat outside the house, etc., or if you want to include them in your emergency fund. If you are in difficult times, you may decide to forgo extra expenses, or you may still want to keep those things. Just be sure to be honest with how much you would really need, if necessary.

Build your fund

Once you’ve decided how much you need in an emergency fund and how much to add to it each month, all you have to do is start saving. Make sure you choose an account that pays you a good percentage of interest and is a safe institution to store that money.

Remember that having an emergency fund available will help you maintain stable your personal finances.