An emergency fund is normally held as separate to ones saving or investment portfolio, and generally made up of three to six months worth of fixed household expenses.
For better or worse money is a necessity of modern day life. It helps put food on the table, pays the household bills, allows us to save for those little luxuries in life, and generally makes the world go round. But have you ever considered what you would do if you needed some money in a hurry?
Having some money set aside in an emergency fund that can be accessed at short notice could assist us all in times of financial difficulty. While good budgeting and planning can allow us to cover most of the years expenses (rates, insurance, car registration, etc.), there may be situations in life that are unforeseen and can put a stretch on household finances. Consider for example the main earner of the house becoming seriously ill and requiring an extended period of time off work, or having to pay for expensive medical treatment for a family member. Or, consider being forced from your home in the event of natural disaster, as has sadly been the case for many Christchurch residents, and needing a bit of financial help to cover any additional expenses during that time away. Insurance can help provide eventual assistance in some of these events, but the provision of an emergency fund could help us through that immediate period following one such setback.
An emergency fund is normally held as separate to ones saving or investment portfolio, and generally made up of three to six months worth of fixed household expenses. While it is the norm for these sorts of emergency funds to be held in high interest savings accounts, it could also be the extension facility on a revolving credit mortgage that gives you this emergency fund contingency. The important aspect of an emergency fund is that it allows you fast access to your money, without the need for breaking longer term investments, selling assets in a hurry, or having to source alternative finance that may not have favourable terms.
So when you are considering your saving and investment plans, take a little time to consider setting up an emergency fund. It could be just the help you need, and may help to avoid any unwanted emotional or financial stress at what would not doubt be a difficult time.