Defining Emergency Money

With most people struggling to make it from one paycheck to the next, the idea of saving money for those rainy days seem too good to be true. But with all things uncertain in life, having a solid financial plan is always a good idea to avoid sinking into debt. And when these unexpected things happen, what should the Average guy and gal do?

Emergency money, also defined as emergency fund is described as money that is set aside to be used whenever the need arises, may it be the loss of a job, a major medical or dental expense, death of a loved one, untimely home or vehicle repairs or even an unwanted pet emergency. Either way, the emergency money serves as a security blanket in the event of a financial dilemma. The target is that one has to have enough money to cover for expenses within a certain period of time, usually from 3 months onwards. And the goal is to stay afloat, to continue living normally through those tough times without having to turn to credit cards, mortgage property or take out high interest loans.

Banking and financial experts as well as amateur advisors have different approaches on how to come up with an emergency money plan including the amount of money an individual has to put in. Now the question is, where and how to start? A good start would be to decide on the amount of money to put in.  It may vary depending on the level of income and may also be determined by calculating expenses such as rent, food and groceries, monthly bills, child care, insurance and so forth and allocating a percentage of that paycheck for emergency money. Another option is to keep it small by starting out with a realistic figure and gradually increasing it over time. There are also emergency fund calculators available on the internet that can be accessed to help in making emergency money plans that is best suited for you.

Next would be where to put that money. There are factors to be considered as to where the money should go once the saving has started. One factor is what is commonly called as “liquid” which means that it is highly available for use when the need arises. Opening a savings account that comes with an ATM or having cash on hand like stashing it under the mattress or keeping it in a piggy bank are examples of this. Another factor to consider is volatility or the ability of its value to change over a short period of time or its unpredictability. An example of this is investing in real estate and buying stocks where it is affected by fluctuation. There are other options available as to where the money can be placed.  Opening checking account, money market funds, certificates of deposits and bonds are just among the few.       

Though it is understandable as it is tempting with that money lying around, always remember that buying that flat screen T.V or the latest gadget out in the market or taking that dream vacation you’ve always wanted and other luxuries does not fit the category of emergency. So take charge, start saving. 

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