Wednesday, August 15, 2007

Why Having Access To Emergency Funds Is A Must

Copyright © Michael Laleye

Whether in business or in your personal life, having emergency funds is crucial if you want to ensure your financial health. You will be able to use this emergency fund in case an unforeseen event happen so it will ensure that you will still remain financially stable if and when these kinds of events do happen. In your personal life, the emergency fund can be used if you suddenly need to pay a huge amount of medical bills or if your car suddenly needs to be repaired. You might sometimes think that the emergency fund is not necessary because you will be able to loan from credit institutions anyway when the need arises. However, this is usually not the case since these institutions will be hesitant to lend you money if you seem to be having financial difficulty. In addition, the emergency fund will also prevent debts and interest rates from piling up so you can enjoy a stress-free life.

Meanwhile, in business, the emergency fund is used to fund different business objectives especially if the allocated fund for a particular project costs more than what is expected. In this case, the emergency fund can serve to save the company a lot of time because the manpower and the time are being used efficiently. This is unlike the case where you suddenly fell short of funds and then the business may need to borrow money from credit institutions and wait for a few weeks for its approval. And even then, there is no guarantee that the loan application will be successful so it will take a lot of time for you to finish the said project.

But with all the expenses that you need to deal with everyday, you might sometimes have a problem in setting aside a small amount to be used for emergency purposes. You should note though that even setting aside very small money during the day can add up and you will be surprised by the amount of money you have saved in your emergency fund within a few months. You can set aside this money buy learning to budget your expenses properly. There are certainly a lot of areas in your life you can save on whether in business or in your personal life. For example, simply saving the electricity will save money and you can set aside these savings to your emergency fund.

Then it is recommended that you place your emergency fund in a medium where it is easily accessible. It is important to note that emergency funds are different from investments though so you should not put this fund into investment mediums with a long term holding period. This is because the real concept to having an emergency fund is to have the money at hand you need when you need it the most.

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