A family reserve fund is a reserve of money for unforeseen events. Creating a family reserve fund is one of the most important things that must be done to improve the family budget and achieve financial stability. If your car or refrigerator broke down, you urgently needed money for treatment, food, and clothes, you lost your job, or your phone crashed, such a cash reserve would help you get out of it and not take on debt. If you have not yet created a family emergency fund and you urgently need a payday loan, you can always contact the reliable and safe Payday Depot. So, why do you need a family reserve fund, and how to form it?
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Why do you need a family reserve fund?
Having an emergency fund gives you a feeling of security, psychological peace, and confidence, reduces anxiety, and works better than many antidepressants.
And in a state of comfort, you make more informed financial decisions and do not make serious money mistakes. Here are some important reasons why your family needs an emergency fund:
- You will stop getting into debt. When an emergency arises that requires unplanned expenses, you will not need to take on debt to resolve the problem and live at an acceptable level in the coming months.
- You will not have any late payments. If you live from paycheck to paycheck, it’s easy to imagine a situation when the time to pay off, for example, a loan or an apartment, has come, but there is no longer enough money. In these cases, a reserve fund will help avoid problems with the bank or landlord, but you should reconsider your spending and budget for the next month.
- You will be more careful about your budget. Now, unexpected expenses will be covered from a special reserve fund, without forcing you to redraw your family budget every month. You can create special reserve funds: for gifts, for annual mandatory payments, etc.
How to form a family reserve fund?
The size of your family emergency fund depends on how much you spend per month. The recommended volume is from 3 to 12 amounts of your monthly expenses. If family expenses are close to income, then the usual practice is to put 10% of each income received into an emergency fund.
If your income allows for greater freedom, you can save 20% or 50%, so the reserve fund will be formed faster, after which you can move on to investing or improving your standard of living. It is important to make the goal of creating an emergency fund a priority. You can use the capabilities of banks and set up an automatic transfer of a specified amount or percentage from the main account to a separate account or deposit.
Where should the family reserve fund be kept?
It is most optimal to store part of the reserve seed fund in cash and open a bank account for the main amount of the fund. When placing a financial cushion on deposits, you can use two approaches:
- Divide the amount into several small deposits without the possibility of withdrawal and replenishment and, if necessary, withdraw money from only one deposit without losing the accumulated interest on the rest.
- Use a deposit with replenishment and the possibility of partial withdrawal of money and also capitalization of interest.
Md Al Amin is a writer and originally from Bangladesh. He has a bachelor’s in Physics from the National University of Bangladesh. He is a professional blog post writer and SEO expert.