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  • Dara Madee
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  • Last Posted: 2017-05-31 07:53:03
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Building and Growing an Emergency Fund

2015-04-12 02:37:37

As the old maxim goes, "Save for the rainy days" majority of financial experts urge people to set aside an adequate amount of cash reserve to cover at least three months’ worth of living expenses. According to Jane Chatzky, the financial editor for NBC's Today Show, one should stick to this advice.


But for renowned personal financial guru Suze Orman, an ideal emergency fund is a cushion that can support an individual’s living costs for at least eight months. Nevertheless, emergency fund is a necessity, which is designed to improve financial security and reduce the need to obtain high interest debt. Behind every strong financial plan is a well-established emergency fund. You can never fulfill your other financial goals if you do not have an emergency cushion.


Let this article guide you through the process of creating and growing an emergency cushion.


According to the US Bureau of Labor Statistics, the average expenditure per consumer unit in a year was $51,100 in 2013. We will use this figure for discussion purposes. Referring to this number, an individual spends $12.774.99 in three months, and $25,549.98 in six months. Well, that is already a huge amount of money. So, Sam should have at least $12,774.99 in his buffer fund. But the question is: Is it possible to come up with this amount of money?
Yes, but slowly.


The amount of money needed to set up an emergency fund is significant. But remember, we live in a time full of uncertainties and unpredictable economies. Forget corporate loyalty. Nowadays, the government has shifted the responsibility of securing retirement to you – and you alone. Again, this can be completed slowly. No investor or personal financial guru will tell you to allocate a substantial amount of money to the extent of compromising your other needs. Just save whatever you can.


When is the best time to save? The earlier, the better. Just like fulfilling your other goals, exert much effort into saving money. Map out a plan and apply it. First, determine the amount of money you spend every month. Upon knowing your total expenses, multiply that number by three. That will be your initial target. And there is no other way to attain that goal but by beginning to save money. For instance, your initial goal is $15,000. You may do this for 30 months or 60 months. Assuming you will achieve this goal for 30 months (five years), you need to set aside $500 / month.


Now, there are various ways to come up an emergency fund. The classic way is to pay yourself first, that is putting a particular amount of cash on your emergency fund before anything else. You may also opt to skip vacation, cut unnecessary expenses, sell old items, get a part-time job, drop the change into a coin bank or jar, or save incentives, commissions, or bonus into the fund.


One should consider the emergency fund like a continuous bill that you must pay every month. View it as an insurance policy that you should secure at all time. Never dip into it for incidental or impulsive expenses. Use the fund in case of emergency, and replenish it afterwards.