Having a financial safety net is more crucial than ever in the uncertain world we live in today. An emergency fund is a sum of money that you set up for unforeseen costs, such urgently needed auto repairs or an urgent trip to the vet. Owning an emergency fund can offer financial stability and peace of mind in the event of an unexpected medical emergency, auto repairs, or job loss. However, how can one establish an emergency fund and what does it truly mean? Here are some key things to know about emergency funds.
Why do I need an emergency fund?
Unexpected expenses can come at any time in life. You’ll need to look for extra money if you have an unexpected bill and don’t have enough cash on hand to pay for it. If you are unable to apply for a line of credit, you may be forced to use payday loans or other high-interest alternatives. This could take the shape of a line of credit.
How much should I save?
One in four Canadians can’t afford a $500 unexpected expense, according to Statistics Canada. The recommendation, however, is to save up enough cash to pay for your usual expenses for three to six months. Even while that may sound like a lot, the idea behind it is to keep you from getting into debt in the event that you change jobs or are temporarily unable to work.
How to build a fund?
Building an emergency fund may seem unattainable given that many of us struggle to make ends meet. However, you will be better off when an unforeseen expense arises if you get started sooner rather than later. Even a small monthly investment will grow into a respectable nest egg over time. For instance, if you put $5 into your fund every week, you will have $260 in your account at the end of the year, plus any interest that money has accrued.
How to grow your fund?
You should open a different savings account to hold the money in order to resist the temptation to use your emergency fund for regular expenses or a big-ticket item. In order to maximize the growth of your money while it is in the fund, look for an account with the lowest costs and the highest interest rate. Online tools that evaluate the fees and interest rates of several Canadian savings accounts are available for free use.
One essential element of financial wellbeing is having an emergency fund. You can deal with life’s uncertainties more confidently if you take the time to establish and maintain this safety net. As your savings increase, start small and maintain your discipline. By doing this, you’ll safeguard your financial future and gain the assurance that comes with planning ahead.
Learn more about emergency funds at: https://newscanada.com/en/What-is-an-emergency-fund–and-how-can-you-create-one–139440
Reference: https://newscanada.com/
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