Emergency reserves: what is it and how does it work?

Posted on Aug. 01 2022 By: Oneblinc 5 min. read

Emergency reserves can help you whenever an unforeseen expense gets you by surprise. When you are prepared for financial emergencies, you keep track of outgoing and don’t need to worry about looking for alternatives to get the money needed. 

However, not everyone knows how to save money and when to use the emergency fund. That is why OneBlinc is going to help you by giving essential tips to avoid spending the money you finally saved. Keep reading to understand more about it and prepare yourself to build your funds. 

What is an emergency reserve?

Emergency reserves represent the cash saved for unplanned expenses. When being used during financial distress, the amount provides financial safety, because you already know how to deal with other bills and debts.

When it comes to an emergency, most people count on loans in order to pay what is necessary. This happens because it is not simple to save money, especially if the income is not enough to cover all the expenses and entertainment moments, which are also important. After all, life is not just about paying bills. 

If a salary is higher, it is more likely to be saved, invested, and used with flexibility. In this case, emergency funds can grow monthly, being used not just to deal with the unexpected but for larger purchases, like a dream house, a new car, a trip, and other plans.  

In the real meaning, emergency reserves are just for emergencies. After being used, it must be replaced again. It becomes a cycle to keep security in financial life. This is why you need to be aware of how to use it and to put an amount of money frequently, as a habit. 

How to build an emergency reserve

Knowing the meaning is simple, but building a money reserve is the opposite. The first thing you must know is that the amount saved monthly has to be what is left from the income, not something that should be used for other expenses. That means you have to pay all your bills and just keep what is left because that money can make a difference in a few exceptional months. 

A man putting a coin in a jar.

This is the reason why there is no right amount of money to be saved, varying according to your financial situation. What you must do is write down all your expenses and income. After that, you know how much is used for fixed expenses and how much you can save without affecting all the payments you need to make. 

Another aspect that can help you to imagine what is considered a good quantity of money to have in an emergency reserve is to think about past emergencies. What were the situations and how much money was used? This can guide you to be prepared for a minimum value. 

There are also a few tips that can help you to build your funds.

  1. Set a financial goal: when you have a goal in mind, you keep focus to achieve it, seeing it as a motivation. It can help you not forget that you need to save money and to know when you are going to complete the amount defined;
  2. Keep monitoring your funds: if you have a goal, it is necessary to monitor the amount saved monthly. This is how you analyze the progress and recalculate the goal in case you miss a month without saving money; 
  3. Keep thinking about the motive: remember your goal and the reason you are saving money every day to keep you motivated. If you don’t see how it is important and how it can help you, you may not take it seriously, which can affect the results. 

The last part about it is where to store money. Nowadays, the best and safer option is to keep it in a savings account. You must choose one that is easy to access and separate from your daily current account. 

Why is it important?

An emergency can get you confused about the best decision to make. Sometimes, when an unexpected situation comes, people apply for loans with amounts they don’t know how they will be able to pay back. Even though the value is defined by the salary, a few institutions are flexible and allow large amounts of money. 

It is common to take out a loan, but only when you don’t have emergency reserves, because, in the end, the cost can be higher than you plan. Loans have interest rates and other fees, such as late payment fee, and prepayment penalty, that increases the original value borrowed. 

Comparing one to another, both are good options to quit debt and have extra money, but a fund has more benefits. The first one is that this is your money, and you get to decide how to use it. Besides, after paying what you need, there are no fees, just a new goal to achieve again. 

Another one is that even if you don’t have the full amount that you need, it still helps to pay a part of the debt. In this case, you can combine the amount of your savings with a loan. 

Get some help at OneBlinc!

With these tips, emergency reserves are not hard to build. In case you need extra money with easy access, count on OneBlinc’s loans. With high-end technology, the analysis doesn’t require a credit check, and you also have the benefit of competitive interest rates. Get to know more and make the best choice!

About us

Unexpected things happen more often than we would like them to. That’s why OneBlinc is here to help, whether you have an emergency or just need that extra cash to go through the end of the month. We believe in people, and we understand that everyone might need money someday, somehow.