They say that misfortunes never come alone and, when it comes to appliances, that is a more than likely reality.
In the last year, all the appliances in my kitchen have been falling apart one by one. First the washing machine, then the dryer, the coffee maker, a couple of months ago the refrigerator, and now the microwave is starting to beep randomly. He’s asking for the time. Being an adult was this.
For an average economycope with replacement of all those appliances In a single year it represents a significant setback. However, we have been able to face this important unforeseen event thanks to a key tool in personal finances: the emergency fund.
Concern in Spain about unforeseen events
The concern about not being able to face an unexpected expense is very present in Spanish households. a study from the neobank Nickel points out that 64% of the people surveyed are concerned that their savings are not enough to cover an unforeseen event, five percentage points more than what was stated in the same study from the previous year.
The same report shows that 28% claim to have planned their savings well, while 8% claim to have not no savings available. Furthermore, the impact is not the same for everyone: 5% of men say they do not have savings, compared to 12% of women, and only 35% of those over 65 consider that they have a cushion large enough to deal with an unforeseen event.
Why an emergency fund matters
The case of my appliances being damaged is a good example of what it is and the importance of having an emergency fund. Financial institutions define the emergency fund as an amount of money saved only for unforeseen events, different from savings for goals such as trips or renovations. It is used to cover, for example, a car breakdown, a boiler that breaks down or a sudden healthcare expense, without upsetting the entire month’s budget.
Having this mattress provides two clear advantages: on the one hand, it reduces stress because it allows face unexpected expenses without making hasty decisions, and on the other hand, it protects you from falling into debt that later becomes difficult.
How much money do you need?
Ok, it is useful and necessary to create “a little corner” for unforeseen events, but how much money would we be talking about?
Factors such as inflation, rising prices from the shopping cart or wage stagnation makes saving a utopia. According to a report Elaborated by Triodos Bank, 19.4% of those surveyed say they are never or almost never able to save, while 36.9% can only do so some months. Only 43.7% claim to be able to save regularly. Therefore, it is understandable that the idea of saving, when you have a month left at the end of your salaryit becomes difficult for you. Don’t panic.
Some banking entities match in which the fund should cover between three and six months of monthly fixed expenses, adjusting the figure to the financial situation of each person or family.
If you have variable income or self-employment, some experts recommend expand that margin by covering six to twelve months of fixed expenses. The result will be your goal saving for emergency fund.
To establish a specific savings figure, you must calculate how much you spend each month on housing, supplies, food, transportation and other basic expenses, and multiply that amount by six or twelve months, depending on each situation. There is even calculators that help you to establish that figure.
Tricks to build the emergency fund without stress
Once the savings goal has been established, it is time to start the plan to make it possible. It is not necessary to spend a large amount of money monthly for this fund, although it is advisable to establish an affordable monthly fee. They can be 10, 20 or 50 euros. It depends on your economy. The important thing is to start contributing.
When it comes to money, the flesh is weak and the temptation to skip the monthly contribution will be very strong, so it is best to establish a savings strategy.
Automate monthly savings
On the one hand, physically separate that emergency fund from the rest of your savings. For example, in a new account. By separating it from your savings or checking account, it will be much easier for you to know how much money you have saved in it and adjust your savings plan.
On the other hand, on a psychological level, seeing how that amount grows will serve as motivation to achieve the goal.
In order to avoid temptations, it is best to automate the monthly transfer of the amount you have established as a quota for your emergency fund. That way, as soon as your salary is credited to your account, that fee will be reserved for emergencies without you having to do anything. If you are not obliged to manage that money every month, you will not be tempted not to reserve it.
It’s not what you save, it’s what you don’t spend
When the savings capacity is limited, it makes a lot of sense to review the so-called “ant expenses“: coffees away from home, impulsive purchases on apps, subscriptions to services you never use or frequent low-cost cravings.
Redirect those small expenses Frequent trips to your emergency fund can make a difference over time, transforming money that slips away almost without realizing it into a cushion that protects against fines, repairs or unexpected bills.
Another key to making the emergency fund grow without realizing it is to redirect all or a good part of any unexpected incomesuch as tax refunds, extra payments, bonuses, smaller prizes or cash gifts to your fund instead of your checking account. After all, it is a income you didn’t count onso nothing better than dedicating it to an equally unexpected emergency.
When to use the emergency fund?
It seems like a truism question, but when you have a certain amount of money saved, it is easy to forget the reason that made you save it. If it is an emergency fund, used for emergencies. But what is an emergency?
No, an emergency is not having stayed no money to go on vacation or to change mobile phones because the new model has been released. A great Black Friday offer is not an emergency either.
Emergencies are unpredictable expenses that cannot be postponed and that affect basic stability: an urgent repair without which one cannot continue working or living safely. A breakdown in the car that you use daily to go to work, a boiler repair or a refrigerator replacement.
It is very important to be clear that this fund is for emergency use, since otherwise you can use that fund as if they were simple savings. The difference is that the savings could vary depending on the economic situation. However, the emergency fund should always stay close to the objective because that is its reason for being: cover you when all else has failed.
However, when it is a true emergency that cannot be covered in any other way, do not hesitate to use this money. The idea is not to feel guilty, but to understand that the fund exists precisely for that: to avoid going into unnecessary debt and to gain time to gradually rebuild financial stability after the scare and replenish the money that has been used.
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Image | Unsplash (Sasun Bughdaryan), Pexels (maitree rimthong)
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