Save for Financial Emergencies – Emergency Buffer

In life, there are many financial emergencies which may limit or take away your earning capacity and some may even require you to come up with substantial amounts of money urgently.

The most common need for an emergency fund includes sudden loss of income through unemployment and unexpected medical, home and car repair expenses.

If you lose your job, you will still have to continue paying your bills!

To cope with these uncertain situations, it is important to have an emergency fund that will help you deal with such events. As a guide, you should have an equivalent of at least three to six months’ worth of your basic living expenses. The last thing that you want is to be forced to rely on a loan which could simply compound the problem.

Apart from saving for financial emergencies, a budget can also help you save for other big ticket items or special events while enhancing your net worth.

Enhance your net worth

A net worth statement is your financial scorecard which can be used regularly to assess your financial standing. It serves as a reference point in making money-related decisions and reports on what you own (assets) and what you owe (liabilities).

Assets include items such as cash, savings, real estate, unit trusts and shares, while liabilities include all types of loans including borrowings from family and friends, credit card debts, payments for rental and utility bills.

Your net worth can be enhanced by monitoring your expenses through the use of a budget.

A budget helps you to control your expenditure. This, in turn, enhances your net worth by assisting you to invest and accumulate assets.

Therefore, the key to enhancing your net worth is simply to spend less and save more for your investment.