Shinsei Associates: The Emergency Fund.
Shinsei Associates looks at the value of having an Emergency Fund and whether you should have one.
The unexpected fills our lives. By keeping an emergency fund, Shinsei Associates believes that you can protect yourself from the unexpected and potentially avoid financial disaster. No matter is it is a medical emergency, redundancy or any other situation, you can insure yourself and your future with a few small steps.
It is typically recommended that your emergency fund should be made up of between 3 and 6 months worth of income, which will, in an emergency, provide you with the ability to weather the storm without resorting to borrowing.
If you are paying off an existing debt, then the idea of saving cash as an emergency fund would seem rather counter intuitive, but if your income is suddenly lost then those missed repayments could result in a negative credit rating which could drastically affect your future. Shinsei Associates believes that knowing you can cover those payments for the foreseeable future is of more benefit than clearing debt and then missing a mortgage payment.
To start building your emergency fund, simply set aside a small amount each month so as not to affect your standard of life while you build it up. Keep your goals realistic and you will keep your focus. Your emergency fund will build up quickly and without noticeably impacting you.
Shinsei Associates recommends setting up a dedicated high interest savings account for the purpose and having contributions transferred in automatically each month.
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