Managing your money well is the first step towards financial comfort. Good money management gives you a financial cushion, so you don’t have to live paycheck to paycheck. The first step towards great money management is to save a portion of your earnings. You can save for multiple things like retirement or a big purchase such as a car or a vacation. Bill Schantz believes depositing an amount into an emergency fund is vital. You never know when something unforeseen may happen that requires immediate cash. You don’t have to rely on big-interest loans or credit cards with an emergency fund.
Where to Keep Your Emergency Fund?
A good place for an emergency fund is a savings account with easy access. A high-interest rate will also work well for you. Your emergency fund should not be tied to your long-term investment fund and should also be separate from your daily spending account. Through a savings account, your money earns interest and is also easily accessible in case of withdrawals or fund transfers.
How Much Money Should Your Emergency Fund Contain?
Financial experts suggest that one should have at least three months’ worth of their salary in their emergency fund. This way, even if you lose your job, you will have money to get by at least for a few months until you find other employment.
Bill Schantz thinks another way to calculate how much money your emergency fund should contain is by tallying your monthly expenses. Add up how much you spend on mortgage or rent, groceries, utilities, and vehicle costs. You should have enough money in the emergency fund to cover living expenses for at least 3 months.
Bill Schantz’s Advice on How to Achieve this?
Setting financial goals and sticking to your plan is one way to achieve this. Make sure your emergency fund account is not accessible from your debit card. Also, you can automate transfers to this account from your main bank account to make things easier. Once you have the sum you desire in your emergency fund; you can always transfer some money from your liquid account to a high-yielding saving account.
Bill Schantz’s Take on When to Use Emergency Fund
Bill Schantz asserts that there will be many times when you are tempted to use your emergency fund. You may want to use it to take a vacation, pay off debts or get a new home.
Make a list of acceptable expenses you can spend your emergency fund on. These can be things like real-life emergencies, a medical problem, an unanticipated veterinarian expense, an unexpected vehicle repair, or during times of unemployment.
Bill Schantz’s Concluding Thoughts
The very purpose of an emergency fund is to have funds in case of an emergency. This will save you from resorting to debt or scrambling for money. You want to fix the crisis during a crisis, not worry about raising money to cover the expense. Good money habits from the start will help you set up an adequate emergency fund. Bill Schantz advises that start with a small amount even if you can’t put a large amount each month. Your emergency fund will grow eventually, and once you start earning more, you can start putting more money in it each month.