An emergency fund, an ally that provides security

How many times have you had unforeseen situations and not had the financial cushion to face that setback without going into debt?

In order to solve any urgent economic situation, it is necessary to create funds for emergencies and contingencieswhich are financial tools that seek to provide security and stability.

But what is an emergency fund? special savings account and that it will only be used to cover the costs of an unforeseen situation, for example, dismissal from work, payment of medical bills, accidents, or circumstances in which the amounts are relatively large.

This money should not be considered long-term savings for college expenses, going on vacation, or buying a new car.

How to create an emergency fund?

A savings target must be established that accumulates the equivalent in between 3 and 6 months of fixed costsenough to pay rent or mortgage, basic services, insurance and schools.

In addition, experts recommend a detailed family budget, because by monitoring the economy, you can know how much money you can allocate to an emergency fund.

Money that is set aside every month must be kept in a savings account separate from the main bank account. It is important that you can access that money immediately, and in addition, it is advisable to choose a savings account that has an interest rate, and that the bank does not charge a late fee when withdrawing money.

Once you have an emergency fund, it will be necessary to add some money, as it will lose purchase value over time due to inflation.

What is a reserve fund?

The purpose of the reserve fund is able to cover small and unexpected expensesbut without enough liquidity to face them in time.

For example, it is used to pay a traffic violation, car repair or home damage, vet bills.

Both funds were built through regular and disciplined savings, with the aim of having enough money to meet financial needs in critical moments, without resorting to loans.

It is important set realistic and achievable goals for the accumulation of these funds, as well as to regularly review their size and adjust it as necessary.