Emergency fund is a liquid cash that is readily accessible for unexpected needs like loss of job, sudden health issue, significant medical expenses and even unexpected expenses. This emergency fund is something you need to build with the leftover amount paid after tax, necessary expenses, investing or saving.
If you don’t have an emergency fund, you might have to borrow money at unfavorable terms leading to a debt burden. It will also lead to lack of independence and respect to approach someone else for taking care of your needs. Hence, to avoid this situation, emergency cash must be easily accessible. The best place for emergency cash is your separate savings account. Determine how much you can afford to save depending on your monthly discretionary income. Now decide the size of your emergency fund, it must be able to cut your living expenses for at least three months. For this, you must deposit regularly a small amount from your monthly income.
Remember that your emergency fund is build from your discretionary income, that is left after taxes and necessary expenses. Emergency fund is used for staying prepared for the worst situations like strikes. In those times, the cost of goods like groceries that are to be purchased may increase, traveling allowances may be costing high, all which lead to a high cost of living. As you are the person responsible for looking after your family, you need to have an emergency fund to have a backup during the unexpected bad situations.
So, if you don’t have an emergency fund set up, start from today. It is not as difficult as you think to fund, but if you build an emergency fund, use that only in the emergency cases mentioned above.