Family / December 2020
Having an emergency fund is a pragmatic way to cover unexpected expenses that may leave you in a financially straining situation. For one, turning to an emergency fund can save you from financial stress, which could stem from losing one’s job, or becoming sick and unable to work temporarily. There are different ways to source emergency funding—typically maintaining a fund for yourself, or obtaining an urgent loan, which can keep you afloat during difficult times. To find out more, read on.
Simply put, an emergency fund is there to help you pay for unexpected expenses and protect your finances. While this may seem straightforward, it’s crucial to determine what a financial emergency is and what’s not, so that you can put your priorities in order.
An emergency fund is used for unexpected major expenses that require you to use the money immediately. Here are situations where it would make the most sense to use your emergency fund:
On the other hand, an emergency fund probably shouldn't be used for:
Experts believe that you should have an emergency fund worth at least three to six months of living expenses, which you can access during an unexpected financial blow. It’s an ideal strategy for anyone, but here are some specific reasons you might want to look into it.
You're living on your own – If you own your own home, it’s essential to have an emergency fund as owning a home is an investment that requires general upkeep. It’s inevitable to encounter issues such as plumbing repairs, electrical issues, and remodeling needs, so you need to have a fund to cover these costs when they come up.
You only have one source of income – If you're someone who relies on one source of income, it may be advantageous to build a substantial emergency fund which can cushion your expenses if that income were to halt. An emergency fund will help you keep up with your bills until you can find new income.
You’re dealing with a medical issue – Dealing with medical conditions can max out your resources quite quickly and may even force you to use up all your sick leaves and take days off with no pay. Through an emergency fund, you can cover expenses to cover your routine medical tests with ease.
You want to save – Savings are different from an emergency fund. While emergency funds are used for unexpected expenses, your savings are used towards a goal you’ve set yourself. Whether that may be starting your own business or acquiring a property, you should have a separate savings fund which can help you reach your long-term financial goals. Having a separate emergency fund can stop you from touching your savings when faced with a big financial hurdle, so you can leave that money for your planned purchases.
If you haven’t had the chance to build your emergency fund just yet and a sudden emergency comes up, don’t panic. There are options you can investigate to assist you.
With Money Shop NZ, you can get fast and easy loans, such as a personal loan to pay rent or cover medical emergencies. We can help you weather short-term financial storms and act as an emergency fund when you don’t have one. Simply apply online, and we will get in touch with you regarding your application as soon as possible! Contact us today to get started.