You should always be ready for the unexpected when it comes to your money. Having an emergency fund comes in handy. An emergency fund is a set amount of money, preferably kept in a liquid and easy-to-access savings account, that you can use if you have an unexpected expense or a situation that your paycheck doesn't cover.
It generally depends on the person with how much of an emergency fund they need, but everyone needs one. Financial emergencies can happen when you lose your job, have big medical bills, get an unexpected bill from the vet, need to fix your house or car, or have to pay for something you never thought you'd have to. In those cases, you could use a credit card or personal loan to make up the difference, but that would put you in debt, a lot of it. Having a fund for emergencies can help keep your finances in good shape. If you don't already have an emergency cash stash, here's 10 ways to help you start one.
The first trick to saving is to "pay yourself first," rather than waiting to see how much you have "left over" after doing everything else at the end of the month. Before you do anything else, set aside a specified amount for your emergency savings at the beginning of each month or each time you get paid.
When you have this money in your savings account, you won't be tempted to spend it on all of the other items that come up.
Automate your savings to further limit the probability of a mistake being made by a human (or weakness). Set up a monthly or paycheck-based automatic transfer from your checking account to your savings account.
Setting a specific monetary amount or a percentage can ensure that you don't lose track of your contributions or spend them on other things.
Consider finding a way to work from home if you have the skills and space to do so. Are you computer savvy? Consider working as a virtual assistant on Fiverr. Or do you bake? Have weekly treat sales to your friends. Do you play an instrument? Offer musical tuition classes from home. In the absence of a monthly budget, you won't miss the extra cash, and every bit helps you get closer to your savings goal.
Reducing your regular expenses instead of beginning your own home business if the idea overwhelms you? Simple changes to the way you buy food can provide significant savings at the register. Do you really need to eat out three times a week? Every bit you can slash from your monthly budget gives you more cash you can put toward your emergency fund. Start by just purchasing things that are on sale, and then stock up when they are the cheapest. Learn how to meal plan, structure your grocery bill around it so that you do not purchase unnecessary items and eat fruit that is in season. It will be more affordable.
Use this budget spreadsheet to see where you can cut back.
Consider making a minor increase, for example, if you want to save $10 per month or $100 per month. As an alternative to the base amount, set aside 12 percent, or $110. Small changes might pile up over time, even if you don't notice them right away. Also one thing that's kind of unconventional, but start increasing your credit maxes. So for example, if you have a credit card, say you have $10,000 on it, call up your credit card company and see hey, can you now increase that available credit to 15,000. And more often than not, they may do it.
Put your savings in a high-yield savings account, money market account, or certificate of deposit (CD) so that it can grow and provide you with additional money in the future. Every penny counts, so make certain you're getting the most bang for your buck.
Make sure you know how much money your emergency savings account can handle before deciding how much to put in it. Therefore, you should keep your money in an account that is easy to access. Because of this, you'll be able to get out of it as quickly as possible and without any penalties.
The unforeseen expenses that usually crop up even if you plan an away vacation have to be considered. The extra money is best applied to an emergency fund, you will be able to go on vacation next year AND have money in your emergency fund. This will put you ahead of the game in terms of creating an emergency fund. In all honesty, even the most thrifty vacations still end up costing more than remaining at home between the petrol, the housing, and the food. Consider organizing a staycation instead.
Even when you know you should stop, it might be challenging to do so after years of living in the "spend" mentality. However, if you are determined to accumulate that emergency savings, you must find a means to withstand the urge. Team up with others who are taking on the same task and want to increase that emergency fund. Create a no spend challenge with your peers and really go for it! See how much each of you can save. Holding each other responsible is a terrific method to ensure success.
Setting a deadline can help you get to where you want to go more quickly. Decide when you want to reach your emergency fund target based on your current financial circumstances. It could take three months, six months, or even a year to get the results you want. The sooner you get started, the easier it will be to raise the necessary funds.
It's a good idea to establish a goal when you begin saving for an emergency savings account. What happens once you've saved enough money to cover three to six months' worth of living expenses? It's likely that you'll have developed a habit of putting aside a portion of your income for an emergency fund at this stage in your life. And don't stop saving simply because you've reached your objective. If you can afford it, save as much money as you can in case of an emergency.
Remember, your savings for emergencies are only for emergencies.
At any given time, you want to be able to access your emergency savings. As long as it is absolutely necessary, you should not be tempted to dig into your savings. Set some limits on how and when you'll use your emergency savings account as you begin to build it up. It's an emergency if your child has a broken arm and you need to pay the deductible on your insurance, such as in this scenario. On the other hand, finding a fantastic price on a designer watch isn't. Also, don't forget to keep your emergency funds in an account with a healthy interest rate. Your money will increase faster if your annual percentage yield is bigger. You'll be well on your way to being prepared for any event that results in an unexpected loss of financial resources if you follow these three measures.
Think of your emergency savings as an insurance plan. Once you have it, be sure to keep it safe. In fact, as your income increases, make sure to increase the amount to reflect your current circumstances.
When you do need to use the fund, only do so in an emergency and be careful with how you use it. Keep in mind that replacing that money always takes considerably longer than expected once it has been spent.
Save as much as you can today, even if it is not much. You have a better chance of surviving a catastrophe if you have an emergency fund rather than racking up credit card debt.