Trash but no Rubbish [Explored]
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One of the reasons that many of us get into debt in the first place is because of a financial emergency of some form. For example maybe our car dies on us, but due to our job or our lifestyle we simply can’t live without one so we go out and get a loan or finance agreement to buy a new car.

Maybe we fall sick and are unable to work which digs into our savings or we have a funeral or medical emergency to pay for and simply don’t have the funds. For some people even taking an annual family vacation is seen as a necessity and if we don’t have the funds for it we simply stick it on the credit card.

It’s a sad fact of life that no matter how well we may budget, these “emergencies” crop up more often than we would like and by their very nature normally take us by surprise.

A sizable sudden need for money can be a catalyst for getting into debt and even worse once we’re in debt to begin with it can be all too easy to think “well, we’re already $x thousand in debt, what difference is another few hundred dollars going to make?”. Before long you’ve dug a hole so deep you’re not sure if, let alone how, you’ll ever climb back out again.

So a key element to debt assistance and paying off your debt once and for all is to set up an emergency fund to cover these exact circumstances.

Experts disagree about what size the fund should really be with debt experts stating figures anything between 3 months and 12 months of your average monthly income. Whatever the figure you decide on, I think most people would agree that the bigger your emergency fund is, the more financially secure you will be and the less risk there will be of you having to rely on debt to cover your expenses.

The best way to set up an emergency fund is to set up a special savings account where the money can accrue over time. Ideally you want to find the account that offers the highest interest rate while fully protecting your money and allowing instant access. There’s no point in an emergency fund after all if it takes you 30 days to be able to access your money.

Then simply set up an agreement with your bank where they will automatically transfer a sum of money – 10% of your monthly income is a frequently-recommended sum – into your emergency account.

Note that the emergency account shouldn’t be the same as your standard savings account where you’re putting money away for your retirement or a deposit on a new house.

This fund should be seperate, untouched and *only* for emergencies. Keep on paying into that emergency account automatically each month until it reaches the sum of money you have decided upon.

Again don’t be tempted to dip into it – even temporarily – to cover things like a vacation. Save for these in advance and instead keep your emergency account fully safe and untouched.

Because next time a financial emergency *does* arise in your life you’ll be glad you have that buffer to protect you.

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