Is Creating an Emergency Fund worth it?

Emergency funds can come handy in a financial pinch. Therefore it is always a good idea to keep three to six months worth of living expenses in a separate account. Here are other reasons why creating an emergency fund can be worth your while –
How much do you need?
The best way to start your efforts is to come up with a goal. For example, the amount in your savings account will depend on your expenses and income. When it comes to emergency funds, a general rule of thumb is to save enough to cover four to six months worth of living expenses. And the larger your family is, the more will you have to save.
Calculate your Monthly Expenses
Make a list of priorities that you have to pay for every month. This may include the price of your groceries, utilities, housing costs, debt payments, insurance and any other bills that you absolutely have to pay for.
For instance if your monthly expenses come up to $3,500 for three months, you will need set aside $8,500 in your savings account to get by in case of emergencies. And remember, the cost of luxuries such as vacations, dining out or fancy dresses should not be included in an emergency fund.
How much can you afford to save?
You also need to be realistic in how much you save. Take a look at your current finances and calculate how much you can afford to set aside for your emergency fund each month. It doesn’t matter if the estimate is smaller than you expect. Any amount is fine if it is all you can afford to save.
Create a Liquid Account
Liquid accounts are the best resources for emergency funds. These are financial accounts that can easily be accessed. Your liquid account may be a regular savings account at a credit union or a bank that provides some return on your deposit. You can also withdraw funds from your liquid account at any time without incurring any penalties.
Repay Debts
This goes without saying. Your emergency fund will be useless if you keep withdrawing from it to cover debts. Remember, every dollar that you pay in debt is money that can be deposited into your savings account. In other words, paying off all of your debts should come first in your list of priorities.
Consumers also tend to spend more if they use credit cards. If you happen to own one, it’s best that you use it sparingly. If you absolutely have to use your card, make sure that you utilize it for planned expenditures such as grocery shopping or medical appointments.
And finally, don’t quit before you even start. You might have failed to establish or maintain a savings account before but that does not mean that your efforts will not bear fruit this time around either. Analyze your finances, learn from your mistakes and adopt proven financial strategies that will kick your saving efforts into high gear.