Debt Consolidation USA Shares the Importance of an Emergency Fund

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Debt Consolidation USA talks about the importance of having an emergency fund. It shares as well the ideal characteristics of an emergency fund.

The fund has to maintain the capital amount.

Debt Consolidation USA shared in an article published last May 26, 2014 the importance of maintaining an emergency fund. The article titled “Importance of an Emergency Funds” highlights the need to save and grow a fund that could help individuals get through emergencies.

The article shares how most people are losing focus in keeping an emergency fund because of the increase in 401(k) early withdrawal. This is measured because of the 10% penalty and so far, about $5.7 billion penalty for early withdrawal has been assessed. Consumers taking out early withdrawal are using them for emergencies. This shows the lack of awareness in the importance of an emergency fund.

Characteristics of an emergency fund was also discussed in the article. It is important that households are aware of how an emergency fund should function in order to maximize the use. The first one is being liquid. An emergency fund must be readily converted to whatever the needs are. It should be flexible enough to be cash on hand or funds in a checking account for payments.

The article goes on to discuss the second characteristic as being accessible. Life emergencies strike when it is least expected and the emergency fund must be able to keep up with the need. It is not a wise financial move to invest the emergency fund in time deposits that restricts and fines early withdrawals.

The third is capital retainment. It is important that an emergency fund keep the capital intact because it is what will be needed the most when emergency strikes. Investing and decreasing the capital amount can prove disastrous in the long run. The fund has to maintain the capital amount.

The article shares how to start building the emergency fund as well. The first one is taking into consideration the possible emergencies that can take place. Losing a job, getting pregnant or other medical situations are possible candidates. Estimate how much funds would be needed to cover the emergency and that would be the target amount.

Next step in building the emergency fund is to budget the funds. Knowing how much living expenses and debt payments are every month and adding these to the emergency cost can give the ballpark figure of the funds needed every month to survive without income. Last is to decide quickly on putting up and maintaining an emergency fund. The earlier the preparation is, the bigger the amount that can be used for actual emergencies.

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Adam Tijerina
since: 04/2012
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