No matter how well you are doing in life, there is that risk and uncertainty factor that always follows. One might end up losing a job or even a getting a life threatening illness.
When such incidences happen, they come without warning. There are various ways that one can engage in, to avoid being caught off guard.
Credit cards might come in handy when one needs some emergency funds. They have eliminated the need for emergency funds to some extent because they can be used to iron out some emergencies.
However, they are not ideal as an emergency fund because they lead to more financial obligations.
An insurance cover may be one of the best ways to make sure you are ready in case of any emergencies.
Insurances packages such as medical covers may come in handy in case of unpredictable medical emergencies. Insurance might, therefore, be a good emergency fund plan.
Financial and contingency planning
One sure way of making sure you are not caught off guard is by securing a pool of funds large enough to cater for six months of regular expenses.
This is particularly for emergencies that require finances beyond insurance cover.
There are various factors that will determine the amount of money an individual will have to set aside.
It depends a lot on an individual’s job security, the number of employed individuals in a family and the insurance premiums to be regularly paid .
Emergency funds, therefore, need to involve large sums of money. The beauty of an emergency fund is that it can be used to service a debt while alternatives are being sought.
Where to keep the money
Since this is emergency money, it has to be stored somewhere that will provide hustle free and quick access when needed.
So it does not matter whether the money brings in a lot of interest. The best way to go about it is to have at least 25% of the emergency fund in a savings account. It is important to deposit a bit of cash now and then.
It is also vital to make sure that your debit card has a significant withdrawal limit. Sweep-in accounts are also ideal in case you wish to derive a higher interest rate from the deposits.