No matter what we do, what position we are in, we can face unexpected situations in life. Unexpected expenses can put us in a difficult situation. In order to better manage these situations, worry less and create an exit plan quickly, the individual emergency fund is a method made by many people. I will let us deep dive to the answers of what is emergency fund and what could be unexpected emergencies questions in this post.
Let’s start!
What is Emergency Fund?
I have always had an emergency budget that I call the Plan-B since elementary school. Maybe its scope and amount have changed a lot, but it is there. Now, I always keep an emergency budget by taking my son and husband in to account.
Emergency fund is an individually created contingency fund for unexpected situations. It is a personal budget that is prepared to avoid a loan, borrowing from someone, or other undesirable solutions when a critical situation arises.
What Can be Unexpected Situations?
Layoff
Unexpected breakdowns in the car or at home
An unplanned emergency trip
Sudden health expenses
and many more according to each of us own life style and flow.
When considering unexpected situations that affect our financials, being unemployed or being fired usually comes to mind first. If we are doing our own business, this may be seasonal bad market conditions or an undesirable adverse situation. When our regular money flow is interrupted, we can manage this temporary period with an emergency budget that we will prepare in advance so that it will not adversely affect us in the long term.
One contingency that may be far more important than being unemployed may be related to our health. Due to a treatment, our money flow may be disrupted and extra costs may arise. In fact, even health insurance can be considered a supporting component of the emergency budget.
Do not forget to visit the post how we explain the concept of insurance to our children.
Even an unexpected breakdown in our house or car can become an extra burden for our monthly money management.
An unplanned trip for any reason may still be a situation where we can apply to the emergency budget. Airline tickets and fuel prices are no longer affordable…
🚨 How to Create an Emergency Budget?
In unexpected situations such as layoff, 6-month amount of compulsory expenses such as rent, bills, child's education expenses, compulsory food expenses are collected and kept aside as an emergency fund. When this fund is used in cases sudden health expenses and unexpected breakdowns, this budget is put in place in the following period and preparations are made for the next emergency.
Or you can calculate other time period such as 3 or 9 months and save the amount for compulsory expenses those you don’t want to postpone.
The importance of experience in personal finance management is huge. I believe we all have something to learn from each other and transfer all this experience and what we have learned to our children at an early -but appropriate age- will not only contribute to their strength but also contribute to their financial literacy and financial freedom.
Share your experience and suggestions about the emergency budget.