Like my blog? Sign-Up for a FREE newsletter! OR Give a ‘Like’ to my FaceBook Page
“One of the true tests of leadership is the ability to recognize a problem before it becomes an emergency” ~Arnold H. Glasgow
Article written by Sherin Dev; Follow me in Twitter or Facebook . To get latest news and articles Subscribe for free!
Economic recessions are a phenomenon generally leaves ordinary people running out of money. If not planned in advance, it will be hard for people to identify immediate money or borrow money as loan from institutions like banks or third party firms. Deep impact of economic recessions generally forces banks and money lending organizations to temporarily freeze lending activities for short or sometime long period. Such action makes the life of common people more miserable. Whether you have experienced it or not, this is the truth.
To protect you from such situations, one should plan early and have surplus fund with him always. A hard line approach to create sufficient “Emergency Fund” is the best possible solution. Creation and holding an emergency fund not only provide you a safety but, release you from mental tensions. Here are the best possible steps to create an emergency fund for you:
Finding Money Sources for Emergency
What is an Emergency Fund?
When someone plans to go for creating an emergency fund, should know what emergency fund is and how to treat the fund for long time. Emergency fund is nothing but, a separate fund, building gradually, which generally equal to your 6 to 10 months salary, hold in a separate account to meet any uncertainties in life by recessions or similar situations.
How to Build an Emergency Fund?
Creation of emergency fund is a gradual process. It required disciplined approach and cannot complete within one or two days or a week or month. A person should plan how, from where and how much required building an emergency fund in a disciplined way. Here are some excellent working strategies that work for long term in a disciplined way:To get maximum success, a person should have two accounts. One should be a saving account to deposit money to build your emergency fund and the second, is a piggy bank or similar facility inside your home itself. You will automatically come to know why you require a piggy bank or similar, at your home.
– Recurrence Method: In this method, you are opening a Recurring facility associated with a bank account where your salary to be get credited in each month. You then set a certain percentage from your monthly salary to be transferred automatically to this recurring deposit. It is a painless practice to build fund for long term. You have option to set duration for your recurring deposits. As a best practice, at the beginning of recurring deposit, set it for next six months and extend the duration once if like it. You have option to decide how much money in each month from your salary, required to get transferred to the Recurring Deposit automatically. You can as well increase the amount at any time or decrease if required. To get more information on how recurring deposits works, contact your nearest bank.
– Sweeping Method: Through a sweeping facility enabled account, any money in your account come as surplus than minimum required balance will get transferred to an investment account associated with it. Bank invests this money on your behalf, to your selected instruments. As banks have their own rules, an account holder must contact to know all information on this facility, prior to start with. You also get all knowledge on how it work, fees associated, is there any possible penalty and how would you get the money back if required. Contact your bank executive to know more about this fantastic facility and advantages and disadvantages.
– Managing Surplus: If above method not works, you can manage your surplus money by transferring it to a special, separate account reserved for your emergency fund. If you have both, salary and savings account, in the same bank, you can automatically do this transfer through a standing instruction to the bank. This will ensure your surplus money will go to the emergency fund in a painless and disciplined way.
– Gifts and Bonuses: Any time, any gift that you receive or a bonus from anywhere, consider it as an addition to your emergency fund and add to your emergency account.
– Monthly Budget Method: You may have a list of bills to pay at the end of each month such as electricity, water, internet, utility etc. Consider your emergency fund contribution as the one among this.
– Piggy Bank Method: Comparing to above, savings through piggy bank may small but if you have right mindset, a piggy bank can also contribute a good amount of money to your emergency fund. To start this practice, have a piggy bank and deposit your balances from shopping, eating out etc.
– Percentage Method: Reserve a small percentage of money to your emergency fund from your extra activities such as movie, smoking cigarettes etc, to your savings account.
Creating an emergency fund should not mix with saving money from various activities. Money saving tips generally explain the methods of saving money from your daily, weekly or monthly activities, through available facilities or special considerations to something but, creation of an emergency fund is an idea to raise a fund by preserving a percentage of money from your savings or from income. Yes, you can even use your saved money as a contribution to this emergency fund.