Everyone should have an emergency fund.
What is that?
An emergency fund is an amount saved which can be used if and only if you face an emergency.
What qualifies to be an emergency?
Health issue. Critical situation demanding money.
Do note that your vacation trip does not qualify to be emergency. Neither buying that expensive pair of shoes.
How much do you need to save?
A decent amount, say $1000, which will get you through most critical situations. However, if you desire to save more you’re at the liberty to do so.
How to do it?
Just take away some money from your earnings and save it in a different bank account or somewhere safe.
If you’re saving that money in a bank account, don’t carry that account’s debit card in your wallet. You’ll be tempted to spend it.
Your goal should be to pay off your credit card bills in full at the end of each month and set aside money toward your emergency savings. SUZE ORMAN
I read about creating an emergency fund in a book called The Total Money Makeover by Dave Ramsey, about a year ago.
Sure enough, I created a fund for an emergency. However, I misused the fund.
I spent the money that I had on that fund to buy an expensive pair of glasses and some more stuff which were clearly not an emergency.
Then, when the real emergencies came, like when I fell sick due to Dengue, I had little cash available to me for my treatment.
That is the moment when I realized the true worth of an emergency fund.
Nevertheless, I’ve started creating the fund again and this time my girlfriend is in charge to keep me from spending money from it unless it’s really an emergency.
If you don’t have one already, it’s time that you build one. You never know when you need money. Some extra cash can come in handy.
Also, if you’re like me, who has trouble controlling his spending habits, you can recruit someone close to keep a watch on you, like I did.
Build it now, you’ll thank me later.