While saving money can be challenging, it is necessary to be prepared for unexpected events and expenses. If an appliance fails in your kitchen or your car suddenly breaks down and needs a costly repair, you will need access to cash immediately. This is the purpose of an emergency fund. Having ready cash on hand will help you to avoid late fees, a hit to your credit score and accumulating debt to pay off what you owe, and the inability to get personal loans for bad credit.
Size of the Emergency Fund
Now that you know you need an emergency fund, you may be wondering how much money you will need to save. The general recommendation is from three to six months worth of typical living costs. This is based on the average time it takes for someone to find new employment and get established. A fund that covers six months will ensure that you can survive in the short term without having to go into debt.
If you own a business, your monthly income will be more unpredictable than with a salaried job. You should aim for a minimum of three months of savings, but it is better to plan for a year or more. This goes for your business as well. Having a rainy day fund will keep the company going during slow times, and you can also use the money for new business opportunities.
Starting an Emergency Fund
It can seem daunting to save enough money to live on for a year. The best approach is to start small. Make a budget that shows the ratio of your earnings to your spending. You can then put a small amount into your emergency fund and commit to paying that first before the rest of your bills. If you set up a savings account through your bank, you can have the amount deducted from your checking and automatically transferred. It may seem like a baby step at the beginning, but the funds will add up over time, and you will have money when you need it. Make sure you are putting the money into an account where you can withdraw it at any time.
Small Business Loans
If you need money for your company, it may make more sense to take a certified business loan rather than dipping into emergency savings. The advantage of this type of loan is that you are not required to have a good credit score. Approval is based on the financial background of your company, not your personal credit history. This loan is repaid through long-term installments that are deducted from the business account at your bank. You do not have to remember payment dates, and you can use the money for anything related to your business.
The modern lifestyle often makes it difficult to set aside money for emergency situations. The staff at DR Credit will help you explore your financial options and get you started on the way to saving. Visit the website or call today for details.
