Emergency Funds 101

Millions of Americans face an urgent situation in need of emergency cash funds on the daily basis. From a broken bone to a recent layoff, urgent situations strike when you least expect them. With the constant growth of needs and expenses, you should always keep in mind the importance of emergency funds. This fund aims to enhance your financial security with a safety net of cash or even liquid assets. These types of funds reduce the need for high-interest short-term loans and offer in advance a reliable source of money to tap into.

What Are Emergency Funds?

Typically an emergency fund must include just enough money to cover necessities starting three to six months. It is up to you to set up your emergency fund, whether at the bank, such as a savings account, or storing the cash at home. Many savers are currently resorting to the tax refunds received to set up their emergency funds and build a reputable budget for future purposes.

The Benefits Of Having An Emergency Fund

Maintain Your Stress Level

It is not a surprise that life will present with all sorts of unwanted and threatening financial difficulties that are gateways to stress. However, when you set up a safety net to rely on when things go south, your financial crisis can be averted quicker and smoother than anticipated. It will give you the confidence to tackle all the necessary expenses without having to go overboard with a loan.

Promotes A Budget

It is only natural that hiding your cash will allow you not to spend it. When you do not see the dollars burdening a hole in your pocket, you will not have the urge to rush out and spend it. Keeping the money in an immediate reach yet conveniently reserved for emergencies only will allow you to set foot on the right path of cash saving. Creating a separate account for your expenses and savings will give you a clear idea of how much you have and how much you still need to save.

Avoid Financially Bad Decisions

Although there are many significantly reliable ways to borrow money, often customers do not weigh in the financial state before doing so. Although smart loan decisions may help increase your credit standing, it is not a wise choice when your finances are suffering. Borrowing cash comes with a tied cost and interest, not to mention the fees and penalties. Having an emergency fund can spare your financial status from taking a plunge with a loan.

Emergency Funds And Investments

Before beginning a hands-on investment path, individuals should first build a stable emergency fund. Although investments offer substantial growth potential for a longer-term plan, they do, however, possess a fluctuating nature. If a market decreases, cash and cash equivalent assets are more likely to suffice than dipping into your price dropped stocks. With that being said, prudent investments make for excellent additions to your cash emergency funds. However, keep in mind that you will need to build reliable capital to withstand the market dips beforehand.