Three Tips on Saving for an Emergency Fund
The economic crisis of 2007-08 made a lot of people realize the importance of having a rainy day fund. But even after a good five years after the recession, not many people have worked on improving the state of their finances. Most people are living paycheck to paycheck, and have nothing to fall back on in case things go awry. However, it is never too late to start saving for a secure tomorrow. The below mentioned points will guide you on how to go about saving for a rainy day fund.
Do an Assessment of your Financial Health
Analyzing the state of your finances will give you some clarity on how you manage your money every month, and help you in forming a strategy for your financial planning. You will get some perspective on what percentage of your net monthly income goes towards your liabilities. It will also give you an understanding of your disposable income. Depending upon the amount of ‘free money’ that you have after paying off the creditors, you should plan a strategy to allocate money to the rainy day fund. Most financial experts opine that you should ideally save 10% of your net monthly income every month. Therefore, somebody earning $50,000 per year should be looking at saving around $400 every month. This 10% is exclusive of the amount that you might be funneling into stock market or buying gold bullion. It is important to remember that there is a considerable difference between saving and investing your money. We are not dissuading you from investing; in fact, it is the only way you can grow your capital. However, you should consider investing only when you have the required emergency funds to see you through an economic crisis.
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