One can never be too careful when it comes to the future of self and that of their family. When hard times hit, you can get stressed when you don’t have any savings or a set up financial security blanket. An emergency fund is very important to have so that you will never worry about how you are going to survive.
A lot of people rely heavily on their retirement fund and hope that it will tide them through rough patches in their lives. That is one way to look at it, but what if it is not even close to enough? You have to set up plan B, if plan A is not sufficient enough.
The truth of the matter is, you cannot afford to keep withdrawing from your 401k every time hard times come by. Keep in mind that the 401k has a ten percent penalty if you decide to withdraw early from it. You cannot afford to take out money because that means the money will cease to earn little to no interest.
An emergency fund is there to provide a lot of services. These are:-
- It will tightly secure you in the event of losing your job.
- It will replace what you earn if you have a business every month.
- It will easily cover all the household expenses that are there for a couple of months.
Setting up an emergency fund
You have first to sit down and analyze what kind of expenses you have per month. Look at what would be the worst thing that would happen in your financial life and get an estimate for each potential crisis. After doing that, then this should follow:-
a) Scrutinize your expenditure
Carefully look at what you spend each month. Identify how much comes in as your income and how many expenses go out. Do away with unnecessary expenses and prioritize the remaining ones.
b) Come to a financial Conclusion
After putting everything apart and rearranging priorities and expenses, you should now be able to draw your conclusion as to how much money you need in your emergency fund, depending on how much you make per month. Remember that you always have to set realistic goals. You cannot make this work until you are ready to accept certain conditions that you make to set up the emergency fund.
However, do not stress yourself to the point you get frustrated. Rationalize like you would when setting up a business proposal.
Setting up student loan emergency fund
People go through life without much thought about their financial future. What is happening right now is good enough for them. What they don’t realize is that the earlier you start securing your financial future, the better.
Borrowing money all the time just because you did not have enough discipline to save your own can be very consequential in your life.
When you are going to school to further your education, there is no doubt that you will need a student loan at some point, no matter how much you put it off.
That does not mean, however, that you sit back and wait for your credit score to go to hell for lack of payment on your student loans. Debt is something that destroys the future of anyone wanting to borrow money or get credibility financially.
You can do the following to ease up on owing too much money. Setting up an emergency fund for student loans is a great way of securing yourself financially.
- Get a job and start saving money. Once you graduate, you will have a well paying job that will sustain you and your lifestyle. But don’t get comfortable just yet. Establish an emergency fund right from the very beginning. You shall pat yourself in the back later for doing so.
- Always budget your money and do away with what you don’t need. A good budget will yield good results.
- When you graduate, you shall be swimming in student loan debt. Don’t ignore your status. Work on improving it because it haunts you everywhere you go. It keeps peeking in your life out of nowhere long after you have forgotten about it and so, don’t make the mistake of ignoring it. Set up an emergency fund that will ensure that kind of situation never arises again in your life.
When you establish an emergency fund in your life, nothing can overwhelm you because you know you have backup. Don’t procrastinate or make excuses as to why you don’t have one. Handouts are not great and are a humiliation to you. They totally expose you because you have to explain why you are asking for money. Secure your own future without having to involve anyone else in it financially. Take pride in knowing that.