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In the midst of the galloping inflation in the country and the latent possibility of a recession it is possible that doubts about how much cash you would be advised to have available for the next year in case of an emergency.
The purpose of creating a fund of this type is to use it before unforeseen circumstances such as layoffs, sudden expenses and anything else unplanned.
It is important to consider that Emergency cash must be based on income and need. It must be money held in a savings account and not in the stock market or in a plan 401k.
Financial experts told the GoBankingRates site that the amount to have available from this fund should be between three and six months of expenses. Although it may seem like a very high number, it must cover the basics.
You should do without some things that are normally needed for a month, such as rent, utilities, insurance costs, cell phone bill, internet, and more.
How can I cover this fund?
There are several alternatives to find extra income for this fund. One of them is getting a temporary job or a second job to supplement your income.
In case of integrating that money from current income, it is recommended to use applications such as Mint YNAB or Goodbudget that allow you to track expenses and ways to save extra money.
Once you have analyzed your budget well, analyze where you can reduce expenses . For example, if you are spending more on meals in restaurants, you can consider visiting these places less and less and betting on cooking at home and allocating the money saved to the emergency fund.
What happens if I have debts?
With interest rates constantly rising, loans for students, cars, credit cards or a mortgage are also on the rise. Coupled with this, the prices of energy, housing and food are leading to more spending on them than before.
In case of having debts, it is recommended to start with those with the highest interest rate and prioritize it as much as possible. Some experts agree that paying down debt is just as important as an emergency fund. It’s a smart move do both at the same time. You can take half of the money and put it in savings while you use the other half to pay off debt.
A report by the National Retail Federation (NRF) revealed that more Half of Americans are going into debt or dipping into savings to cover current expenses. Hence the importance of creating this fund.
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