What is emergency fund? In a simple way emergency fund is a money that you have in order to pay unexpected expenses. Everyone have an emergency fund, but just a little people allocation their money for emergency fund.
Why emergency fund is needed? No matter how good we plan for ourself, sometimes there are something unexpected come to us. Let we say you have an insurance for your health, you think you already secure your health perfectly. Unfortunately, not every medical expense is covered fully by insurance.
Another example for emergency fund is a money to pay your home repair or replacement, or you lost your job. if this is happened, you need emergency fund to cover your expense.
The big question is how much you need to allocate your emergency fund? Ideally you need to have at least 3 month your expense as emergency fund. If you have already family, you need at last 6 month your expense.
One of the great reason why you need emergency funds is to protect your investment. Investment is your source of wealth in a long term, but for short term it can be disaster or loss. If you have to break your investment to cover your expense, it can be financial disaster.
Now you already know and can to allocate your own emergency fund. One to be remind, too much emergency fund is also not wise, because it mean that you are saving too much instead investing, for long term your emergency fund is loss from inflation.
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