• Marc Primo

Here’s Why Emergency Funds Are Very Essential These Days

This is an article ‘Here’s Why Emergency Funds Are Very Essential These Days’ by Marc Primo


If you ask finance experts about the importance of emergency funds in your life, they'll mostly say the same thing: it's the next most essential thing you should have after your basic needs. Take the recent pandemic, for example. No one had the chance to prepare for such disruption. With a global health crisis that has taken lives by the millions and affected our economy and hospital beds drastically, those with emergency funds somehow had a contingency source for needed cash. Imagine not having one for the next emergency that comes into your life.



From car accidents to learning you have a chronic illness that needs a closer look, life's unpleasant surprises can come at any time. Living from paycheck to paycheck without any type of insurance can give you huge problems when these emergencies arise. These days, starting emergency funds, even in small monthly amounts, can help you prepare for whatever unforeseen crisis might occur in your or your loved ones' lives.


Before we review the top professional tips on starting an emergency fund, let's first break down what it is.


According to financial experts, an 'emergency fund' is a portion of what amount you set aside, whether daily, weekly, monthly, or annual. It is often called your 'rainy day account' or 'piggy bank money.' Still, unlike your regular savings, emergency funds are usually withdrawn and used only in times of dire need, such as accidents, medical reasons, sudden unemployment, or death. These funds should never be used for your vacation in Europe or surprise birthday parties.


Now that we've discussed its actual function, here are some insights on how you should have an emergency fund, especially in this day and age of epic emergencies:


Setting an amount for a specific period


Anyone can set how low or high an amount they are willing to set aside as contributions for emergency funds. However, what is essential is meticulously reviewing your earnings per month, summing up your regular expenses, and determining how much you'll need in worst-case scenarios.


Though that may seem daunting, here are some professional recommendations on how you should set up your emergency fund amount contributions. First, you should perform a step-by-step guide as follows:


  1. Calculate your monthly expenses and identify which expenditures you can do away with (e.g., streaming subscriptions or food deliveries) and those you cannot (e.g., rent or car payments).

  2. Identify what instances you'll need the emergency fund for, their gravity on how they can affect your life if each one happens, and their possibility ratio. For example, if you live in a place that's prone to tornadoes, you might want to prioritize saving up for home repairs and insurance.

  3. Set your target amounts by how much you can set aside per day, week, month, or year, then calculate projections on how much you can save up in one year. Make adjustments depending on how much you've calculated for your needs and the foreshadowed emergency frequency within a year.


Do not worry too much about being unable to meet your annual goals. Most importantly, you have set aside some money to help you brace for the worst. Some things to always keep in mind when starting an emergency fund are to automate your savings accounts via fintech applications for easier management and tracking, be religious in your periodic contributions, and monitor new expenses that may arise so you can make the necessary tweaks.


Most importantly, never dip in the emergency fund cookie jar for other needs other than those that constitute an emergency.


The easiest way to start an emergency fund


Not many technicalities are required when opening an emergency fund account at the bank. Anyone can do it, and there are a lot of local credit unions and community institutions that can help you start. However, these days, it might be wiser to go for high-yield savings accounts offered by online banks.


What you need to consider is to build a buffer between your existing debt and the amount of contribution you can pledge for your emergency funds. Settling your debt and preventing it from ballooning due to interest will only defeat your emergency fund's purpose and bury you deeper. Start small with your contributions, and do not compromise your monthly payments for your loans or credit card debt.


This brings us back to being disciplined and resisting the temptation to use your emergency fund for other things. It would also help if you did not acquire more unnecessary debt to maintain the amount you put into your emergency funds. Try to save more money to control your spending and payments better, and always focus on your target amount for each financial goal.


One thing that can help you keep your emergency funds separate from your regular financials is putting them in another bank and opting for in-person withdrawals instead of online or via debit cards, creating an account via internet banks, or securing your funds into a certificate of deposit. That is, if your post-emergency needs can wait. Otherwise, you may want to go for online banks to make your funds more accessible whenever and wherever you need them.


Go fund yourself


Starting is easy, but keeping yourself disciplined and avoiding the temptation to use your emergency funds for other reasons is the challenge. If you have to, print out a note that lists down potential emergencies that may arise and place it somewhere you will always see it.


We know – it can be a bit sad at times to know how a large chunk of cash remains sitting at the bank and simply waiting for the worst. When you get this feeling, merely think about how easier things will be regarding self-assurance, debt avoidance, and financial assistance when things get more difficult in the long term. Soon, you'll remember why you started an emergency fund in the first place. Sometimes, it does help to keep a worst-case scenario mindset.