I have a secured job and I am in my thirties, why do I need an emergency fund? Well, an emergency fund is not only helpful for people who are approaching retirement age or for people who do not have stable income, it is essential for just about everyone. An emergency fund allows you to prepare for a rainy day and save some portion of income regularly, so that you can meet unexpected expenses, which usually come in as an unpleasant surprise. Life throws surprises and so does the Mother Nature. Natural disasters do not see whether you are in your thirties or fifties. So, it makes perfect sense to start an emergency fund early in your life and it does not harm to keep extra savings. There are 3 things to look at before starting an emergency fund.
Numbers vs. Value
Now, the question arises how much should you save for an emergency fund. Well, you don’t know what sort of emergencies may arise, then how can you prepare. The best thing is to see what experts have to say. Some experts advise you to save an amount equivalent to 3 to 6 months of expenses, while others suggest saving 10% of your income every month. Whether you are choosing to set aside 3-6 months of expenses or you are choosing to save a certain percentage of your income, the goal is to regularly save so that at the end of the year, you have enough money to meet the extra expenses, if any.
Beginning of the month vs. End of the month
Now, many of us have this tendency to push things and some of us wait until the end of the month to put a certain amount in savings account. Experts like Suze Orman advise to save in the beginning of the month. In the words of Suze Orman,“If you wait to see how much money you have left at the end of the month to put toward savings, the answer may be zero. So, set up an automated monthly transfer from your checking to savings account. Once you lock into that commitment, you’ll be forced to scale back spending to make ends meet.” Now, this is a great way to start. However, if you are disciplined and your idea is to clear off all the expenses before you save, it will not hurt you either, as long as you are consistent.
Love it or Upgrade It
When it comes to your needs, it is important to think strategically. Whether you want to upgrade your car or want to buy a bigger home, it is important to look at the numbers and how much this upgradation is going to cost you every month. It is equally important to see, if the additional expenses are going to hurt your emergency fund. In the words of Dave Ramsey, “You don’t want to have so much money going toward your mortgage every month that you can’t enjoy life or take care of your other financial responsibilities.” At the end of the day, you want to attain financial freedom and peace and if by scaling up you lose some of your savings as well as the mental peace, it is better to defer the upgradation till the time you increase your income or reduce your expenses to attain that balance.