An emergency fund is that reserve that is easily accessible and that can only be used in the event of an eventuality.
In this article, we present some recommendations for you to learn how to create this type of essential savings in your life. The variables that you must take into account to decide its size and where you can deposit it.
What Should Be the Size of Your Emergency Fund?
Sometimes life brings eventualities that generate additional expenses, which can affect your personal finances. So that you do not have to get into debt, through a credit card or a loan, the solution is to create an emergency fund.
Size depends on the number of risks you face and their impact on your personal finances.
To give a guide, keep in mind that a high risk you are exposed to is that your income is cut for some reason.
Other minor risks maybe those that are less likely to occur, such as a decrease in your monthly income or an unforeseen expense that is not covered in your monthly budget.
From this premise, you must decide the size of your emergency fund taking into account your monthly expenses, for which you must establish a budget.
Generally speaking, the recommended size of your emergency fund is a minimum of twice the value of your monthly expenses and, ideally, four onwards.
How Do You Create an Emergency Fund?
To answer this question, you should consider how much space you currently have in your budget to take out a separate amount of money and put it into your fund.
Organize your expenses so you can make these monthly savings. To give you an idea, if you have the ability to save 10% of your income, it will take twenty to thirty months to complete your fund.
In the event that your expenses definitely do not allow you to save, review your budget and try to make the necessary adjustments to free up money for savings, even if you start with less than 10% of your income.
One idea of how to get a jump start on saving is to put your premiums into this fund. When you have completed it, you can continue saving for other purposes and keep the money in the fund reserved for eventualities.
Where to Reserve the Money From the Emergency Fund?
Look for a financial product with the following characteristics:
- That gives profitability, even if it is low, but that prevents money from losing purchasing power due to inflation.
- Have easy access in case of emergency.
The CDT or mutual funds in view are excellent choices to save money from your emergency fund.
- The secret to saving is consistency. Consider a system that reminds you of your savings goal and forces you to save.
- Ask someone you trust to monitor your savings.
- Use “required” savings methods, for example, have 10% of your salary withheld in the employee pool.
- Define what types of eventualities are included in the list of emergencies, so that you do not spend money with excuses such as discounts or last-minute promotions.
In this way, you can create your emergency fund, one of the steps to have good financial health.