The Importance of Setting Up Emergency Funds

Emergency Funds
Emergency Funds

The COVID-19 pandemic for us is an emergency that can strike at any time and you can do nothing but be prepared. Emergencies such as pandemics, natural disasters, earthquakes, floods, poor health conditions, salary cuts, and layoffs may occur out of control. To be ready for all of these things, you must start gathering emergency forces from now on. Then, how to collect it? Check out how to start having an emergency funds as well as the amount that needs to be prepared below!

What is the Emergency Fund?

An emergency fund is a fund that will help you meet your needs in a very precarious situation. With these funds, you don’t need to make loans, use credit cards, or even sell and mortgage the assets you own. For emergency funds, you may need to consider how big your primary expenses are, such as health, rent, mortgage payments, loans, school fees, insurance, food, and whatever else you feel is important. This collection of money is different from savings and is not an investment. However, you can use investment instruments to save emergency funds. Make sure to only choose low-risk investments for this need.

How to Calculate Emergency Funds

When deciding how much to save for emergency funds, there are several ways that financial experts often recommend. You may have heard that saving for an emergency fund can be done slowly. Then you can do it regularly and save on living expenses for three to six months or more depending on needs. However, the Covid-19 pandemic has revealed that having just six months’ worth of emergency savings may not be enough. Even more so if you experience a prolonged decline in income.

When deciding how much money to save for emergency funds, consider the following:

  • the number of your dependents;
  • the number of people in the family who have income;
  • the minimum amount needed to cover monthly expenses; And
  • the stability of your multiple sources of income.

Calculation of your emergency fund must be realistic. Make sure you are able to save and set aside holding money to meet primary needs.

Where you can save the emergency funds

In survival, setting aside salary for saving is an activity that almost everyone does. However, instead of relying solely on your source of income which can disappear at any time, allocate your emergency fund into investments. In addition to saving money, investing can function to manage wealth. Investments are also made to protect your assets from the threat of inflation. Here are some investment options that you can make:

  1. Savings

Deposit interest rates are set from the start so that investors will definitely benefit. However, this doesn’t mean you have to ignore the terms. Before you make a deposit, know the terms and conditions that apply. Starting from the time period given and how to disburse funds. Since you are using a deposit for an emergency fund, pay attention to the penalty fee when the money is withdrawn before maturity. Make sure you don’t keep all your emergencies in a deposit, OK?

  1. Mutual funds

Mutual fund investment is the right choice for you. In mutual funds, you only need to buy the investment packages provided by the Investment Manager, namely Unit Participation. This investment package contains a variety of stocks, guarantees, and money markets that have been calculated for growth and risk. These things will minimize the risk of wrong purchases from customers so that mutual funds are easy for beginners to do. There are various types of mutual funds, namely stock mutual funds, mixed mutual funds, index mutual funds, fixed income mutual funds, and money market mutual funds.

Because it’s intended for emergency funds, it’s best to only choose low-risk mutual funds, such as money market funds and mixed funds. In addition to paying attention to the terms and conditions, before making a deposit and mutual funds it’s a good idea to also pay attention to the party being used. To be safer and more secure, make sure you choose an institution that is safe and has been registered and supervised by the Financial Services Authority.

The Importance Of Setting Up Emergency Funds
The Importance Of Setting Up Emergency Funds

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