If not planned well in advance, it would be hard for ordinary people to find money or borrow money from lending institutions such as banks or third-party lenders when trouble occurs.
Deep impact of economic recessions generally forces banks and money lending organizations to temporarily freeze lending activities to short or sometime for long periods.
Such actions bring the life of common people more miserable. Whether you have experienced it or not, it is a known truth!
To protect from such crisis, one should plan well in advance to have surplus fund always.
A hard-line approach to create enough “Emergency Fund” is the best possible solution.
Creation and holding an emergency fund not only provide safety but, relief from mental pressures. Here is the best tips to create an emergency fund:
A hard-line approach to create enough “Emergency Fund” is the best possible solution.
Creation and holding an emergency fund not only provide safety but, relief from mental pressures. Here is the best tips to create an emergency fund:
What is an Emergency Fund?
When someone plans to go for creating an emergency fund, should know what an emergency fund is and how to treat the fund.
Emergency fund is nothing but, a separate fund, building gradually, which generally equal to 6 to 10 months of salary and setting aside in a separate account or mutual fund to meet any uncertainties in life through any negative cause.
Emergency fund is nothing but, a separate fund, building gradually, which generally equal to 6 to 10 months of salary and setting aside in a separate account or mutual fund to meet any uncertainties in life through any negative cause.
How to Build an Emergency Fund?
Creation of emergency fund is a gradual process. It required disciplined approach and cannot be completed within one or two days or a week or month. A person should plan how, from where and how much required to build an emergency fund.
Here are some excellent strategies that work for long term:
Here are some excellent strategies that work for long term:
To get maximum success, a person should have two accounts. One should be a saving account to deposit money to build an emergency fund and the second, is a piggy bank or similar facility inside the home itself. Later, you will come to know the use of a piggy bank or similar, at home.
Practical Methods to Create as Emergency Funds
Method #1: Recurrence Deposit: With this method, open a Recurring facility associated with a bank account where the salaries to be get credited every month. Set a certain percentage from monthly salary to be transferred automatically to this recurring deposit.
It is a painless practice to build emergency fund for long term. Set required duration for such recurring deposits to accumulate money.
As a best practice, at the beginning of recurring deposit, set it for minimum one year and extend later. Decide the date and amount to get transferred to the RD every month. There are options available to increase or decrease the amount, if want to do so.
To get more information on how recurring deposits works, contact the bank officials.
As a best practice, at the beginning of recurring deposit, set it for minimum one year and extend later. Decide the date and amount to get transferred to the RD every month. There are options available to increase or decrease the amount, if want to do so.
To get more information on how recurring deposits works, contact the bank officials.
Method #2: Sweeping: When enabling the sweeping facility with an account, any surplus in the account above the required minimum balance, would get transferred automatically to another account.
If approved by the customer, banks can invest this money on behalf of the account holder. In order to do so, consult the bank official to know the details. Consider knowing the fees and penalty parts of this facility.
Method #3: Managing Surplus: If above method is not working, manage the surplus money by transferring it to a separate account reserved for an emergency fund.
Giving a standing instruction to the bank will help to transfer the surplus to the given account.
This method ensures the surplus money in an account going to the emergency fund automatically.
Giving a standing instruction to the bank will help to transfer the surplus to the given account.
This method ensures the surplus money in an account going to the emergency fund automatically.
Method #4: Gifts and Bonuses: Any time received a gift or bonus from anywhere, contribute the same to the emergency fund as an addition.
Method #5: Monthly Budget Method: When creating the monthly budget, reserve an amount separately for the emergency fund. This head will come directly under to the expense part and an easy method to set money aside every month for the cause.
Read “Budgeting Finances – A Step by Step Guide’ in this blog to get all the details on how to do budgeting.
Read “Budgeting Finances – A Step by Step Guide’ in this blog to get all the details on how to do budgeting.
Method #6: Piggy Bank Method: Comparing to above, piggy bank is small but can contribute good amount of money in each month to the emergency fund.
To start this practice, have a piggy bank and start depositing balances from shopping, eating out etc.
Encouraging kids to contribute to the piggy not only help to get money to emergency fund, but gives a right message to live frugal as well as responsible.
To start this practice, have a piggy bank and start depositing balances from shopping, eating out etc.
Encouraging kids to contribute to the piggy not only help to get money to emergency fund, but gives a right message to live frugal as well as responsible.
Method #7: Percentage Method: Reserve a small percentage of money from any extra activities such as home business, part time business etc and periodically stopping a habit of watching movie smoking etc.
An emergency fund should not mix up with other savings. It is for a particular cause only thus must set aside as untouchable and contribute money regularly.
