How to Start an Emergency Fund and When to Use it

An emergency fund is a very important part of your financial life. It guarantees your safety and security, allowing you to dismiss some very serious money-related anxieties.

How to create an emergency fund?

An emergency fund takes time to build as most of us don’t have big lump sums of money lying around. To begin, set any small amounts of money you can spare until you reach the desired amount. Experts advise to keep enough money in your emergency fund to make up six months of essential expenses. These expenses should include your rent or house maintenance expenses + food + transportation + medical expenses such as essential medicine or doctor visits. You shouldn’t account for any non-essential expenses in your emergency fund.

1. First step is to save 20% of your monthly salary and setting it aside each month.
2. As soon as you collect enough money to open up a bank account, you should open a savings account and continue to put your 20% in the account each month. The most important part is to never dip into the account for any reason.

- If you save a substantial amount of money, you can always open a Time Deposit in the bank so that you can get a higher interest rate. The main benefit of a Time Deposit is that it is easier to break than a certificate deposit. In addition, you should also continue to save 20% of your salary and put it in your savings account.

your emergency fund an insurance policy against any unexpected financial situation, and that way you will be able to control some of your money-related anxieties.

When should you use your emergency fund?

You shouldn’t use it unless there is an emergency such as:

1. You lost your job.
2. You need to cover emergency medical expenses.
3. Any expenses related to natural disasters.

At the end, you should consider your emergency fund an insurance policy against any unexpected financial situation, and that way you will be able to control some of your money-related anxieties.