This is a guest post written by Timothy Ng, a personal finance writer for Balance Transfer Card.
From time to time most of us could do with a little nest-egg of funds to help pay for any unexpected bills or luxury expenses. Therefore saving money and keeping an emergency fund is pretty much a must-have for all. No one can predict how life turns out. If you are one step ahead, with a nice surplus of savings in your bank, you will always have peace of mind about your finances.
How financial emergencies can impact your life
A financial emergency can strike at any time; you could lose your job overnight, have a bad accident, or find yourself with a large unexpected bill for your car. Relying on a loan or credit card in a financial emergency is dangerous, because you can end up with more debt.
It is quite obvious that a financial emergency could wreck your life for a long time if you are not adequately prepared. Plan your emergency fund early and then work that plan.
How much should you be saving?
When it comes to emergency funds, most experts agree that you should put aside three to six months worth of savings for a rainy day. This varies of course. Families with kids might be best advised to save more than that to avoid any unnecessary shortcomings in a financial emergency.
If you carry a lot of debt, then you should focus on paying off these debts sooner than later before you even consider saving money for emergency purposes. (Editor Note: Personally I think putting together a small emergency fund first is important so you don’t incur more debt with little emergencies here and there but keep it reasonable. Debt is a huge burden that has to be addressed as quickly as possible.)
What about insurance coverage?
An option is for you to consider taking out income protection insurance. It could come very handy if you ever lose your job overnight and find yourself faced with a large mountain of bills to keep a roof over your head.
How to build up an emergency fund
The easiest way to get started is by starting small. If you are struggling with money management in general you might want to speak with a financial advisor first. The professional can help you by drawing up a feasible budget that even you can stick to while you put some money aside each week.
Smaller chunks of attainable goals are also easier to stick to. If you do, you will soon build up a nice nest-egg of savings. Remember, try and use a high interest savings account for this purpose to earn money on your savings.
Discipline will pay off in the end
Initially it might be very hard for you to save extra money, especially if you never have enough. However, with a bit of discipline you will soon find that saving money is like riding a bicycle. Once you know how to, it will become second nature and fun.
Make sure that any account you dedicate to the purpose of saving money is accessible should an emergency strike. The last thing you’d want is to wait for the money to be released by the bank.
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