The financial circumstances are different for each student. While some students are financially dependent on their parents, others rely on scholarships, quick student loans, or education loans. There are students who rely on their part-time job income also to meet monthly expenses. Irrespective of the source of funds, it is important for college students to manage their money well. A budget for regular expenses and an emergency fund are necessary to handle unexpected expenses.
What is an Emergency Fund?
An emergency fund sets aside a certain amount of money in a savings account to cover financial emergencies or unexpected expenses. Its sole purpose is to offer a financial safety net so you have funds available immediately when you need to handle any kind of unforeseen events without having to deal with high-interest debt or depleting your investments and regular savings. Alternatively, for urgent needs, you can also consider emergency loans online to provide quick financial support.
Benefits of Building Emergency Debt Fund
- Financial Stability: During tough periods of time, an emergency fund can be a pillar. It can save you from getting into debt or relying on high-interest credit cards for unexpected expenses.
- Quick Action: Emergency situations demand immediate action. With the help of an emergency fund, you can act quickly. You do not need to wait for any financial help.
- Losing a job or income reduction: An emergency fund can cover your living expenses until you successfully stabilize your financial situation by securing a new job.
- Peace of Mind: Knowing that you have a financial burden does not mean that you need to live in constant stress. This will let you focus on other essential aspects of your life.
- Avoid high-interest debt: When faced with an emergency, people often use high-interest loans or credit cards. Thu, funds can save you from falling into a debt trap.
- No Need for Borrowing: Borrowing money from family and friends is always uncomfortable. Even borrowing money from financial institutions can lead to debt and high interest payments. With an emergency fund, you can easily avoid this and also avoid strained relationships with your friends or family.
- Reduced Stress: Knowing you have an emergency fund can significantly reduce stress and anxiety during difficult situations.
How do we Build Emergency Funds?
Building an emergency fund is one of the most crucial steps in financial planning. Here are a few steps to consider when creating an emergency fund.
- Set a Specific Goal: It is important to determine how much should be allocated to the emergency fund. Normally, it is advised that one set aside an amount that can cover 3-6 months of expenses. Nevertheless, the sum may be different depending on certain conditions.
- Automate your Savings: Make sure that you set your automatic transfers so that you cannot spend your expenses out of your savings. It will immediately go into your savings accounts even before you can pay it.
- Monitor your Progress: You must also track your progress to ensure that you have achieved the intended savings. If your financial situation changes, it is prudent that you change your savings as well. You can increase your contributions if you get a new job with a higher salary. However, if you face a situation like getting laid off, consider temporarily pausing or decreasing the amount you are saving.
- Maintain a Good Credit Score: During emergencies, a good credit score can prove to be a valuable asset. It can help you get qualified for loans with favourable terms. When you stay on top of your credit score, you can have several options when you need financial assistance.
- Cut Back on non-essentials: Look at the areas of your budget where you could cut back. This will include entertainment, dining out or unnecessary purchases.
- Keep it Accessible: Keep your emergency fund in a separate savings account. In an emergency, it should be easily accessible, but not so accessible that you become tempted to spend it.
- Keep Saving Even After Reaching your Goal: There are emergency situations that require more than six months’ safety. One can never really know when and for how long they might be under critical situations. So it is always best to stay prepared for the worst-case scenarios. When you are unemployed for over a year or hospitalized for several months, you will have less stress if you have saved enough money to deal with long-term emergencies.
- Regularly Review Your Plans: Check your financial plans regularly and consider possible expenses like car repairs, medical bills, or home maintenance. When you are prepared, you can handle surprises easily.
Conclusion
It is always good to save some money in an emergency fund because one never knows what fate has in store for him or her. It acts as a budget for emergency situations, and it prevents people from taking costly loans or credit cards. Trying to build up at least six months’ worth of living expenses and sign up for automatic savings via apps. In case of emergent expenses, before you have enough money in your emergency fund, mPokket will be there to help you. Start small with your savings and build up over time, using mPokket as a backup to keep financial stress at bay.
