What is an Emergency Fund? Check out the following explanation!

What is an Emergency Fund? – In everyday life, you need money to be able to make ends meet. Money can be spent, it can also be made. Money should also be saved for certain things. Therefore, you must be adept at managing money so that your finances stay healthy, your needs are met.

However, sometimes something happens that is beyond your calculation and control. This can drain your finances. So, you have to prepare an emergency fund so you don't sink when you have to spend a lot of money suddenly. So, what is an emergency fund? How to get it?

Also Read: Managing Housewives' Finances: How, huh?

What is an Emergency Fund?

what is an emergency fund

According to your money OJK, "Emergency Fund is a fund saved for an emergency". Therefore, emergency funds are used when you are in a situation that needs money suddenly. It is impossible to predict when this situation will come. However, you can prepare it carefully as soon as possible so that later there will be no financial difficulties.

An emergency fund is very important to prepare. If you already have an emergency fund savings, your financial situation can remain stable. You don't need to use your savings. Money for your daily needs is not disturbed. You also don't have to borrow or mortgage anything so you don't have to pay debts.

When is an Emergency Fund Used?

In accordance with its function, emergency funds are used when there is an emergency. Emergency funds can be used when sudden events occur, such as accidents, damage or loss of personal facilities, hospital fees, or layoffs (Termination of Employment). In these situations, you cannot predict how much money will be needed.

How Much Emergency Fund Should You Have?

You never know how tough the situation will be. Therefore, you must prepare as much as possible so that there will be no financial difficulties in the future. However, the size of the emergency fund must of course be adjusted to your needs and income.

Based on the recommendation from the OJK, for those of you who do not have family dependents, an emergency fund is prepared 3 to 6 times your salary. However, if you already have family dependents, an emergency fund is prepared 6 to 12 times your salary. The salary in question is your total income per month, yes! The number looks big, but the role will be big too, you know.

How to Collect Emergency Fund

To collect a large enough emergency fund, you have to be smart in setting aside money. There are steps you can take to raise an emergency fund. This is the strategy suggested by OJK, lol. Please listen!

#1 Calculate Average Monthly Expenditure

You have to calculate how much you spend on average per month. The expenditure in question is a calculation of the needs and desires that you usually spend every month.

#2 Set aside Amount of Money for 10 Months

From the average expenses that you have calculated, determine how much money you want to set aside. Set a nominal amount that will meet your emergency fund target in 10 months. If it's not enough, reduce your spending allocation for things that are not too important. If there are expenses that can still be circumvented, such as costs or food, reduce them and replace them with other cheaper alternatives or spend no money at all.

 #3 Discipline in Collecting Emergency Funds

The most important thing in setting aside an emergency fund is discipline. You must always manage and control both your finances and your passions to remain constant in setting aside money. Because emergency funds are savings that you don't know when to use, sometimes you feel demotivating in setting aside money. Confirm your position: it'll be worth it!

If you are still having trouble managing and setting aside an emergency fund, try saving your emergency fund in a different place from your savings. You can use financial apps to help you set aside savings. Don't get mixed up, okay?

Also Read: How to Manage Business Finances: How, huh?

That's an explanation of what an emergency fund is. Very important, right? Come on, start setting aside your emergency fund. You can use the Pockets feature from Whiz to make it easier for you to manage your emergency funds. Come on, manage your finances with the Whiz Financial App.!