There’s a lot of information floating around the world about the dos and don’ts of managing your personal finances. The one thing that is common to most of them is the importance of an emergency fund.
You see, when it comes to personal finances, the best way to stay on track is to be prepared for anything. This is where an emergency fund comes into play. An emergency fund is the first step towards living a debt free life.
Where do you start with building your emergency fund? Check your bank balance and your credit card statements to see how much money you have available to you. If you have a high savings rate, you may have enough to build an emergency fund.
If not, you may need to cut back elsewhere to build it up. Luckily, there are plenty of ways to build your emergency fund without making any sacrifices. We’ve listed 5 of them below, to help you start your very own emergency fund…
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What Is An Emergency Fund?
An emergency fund is money you have set aside for emergencies. This could be a car repair, emergency surgery, or even a family vacation that is cancelled due to foreseen circ*mstances.
We never know what’s around the corner, and if something bad happens, you don’t want to have to rely on credit cards or your overdraft. So, that’s where your emergency fund comes in.
Why Do We All Need An Emergency Fund?
An emergency fund ensures you don’t get caught short of money at a time when you need it most. If you get sick, lose your job, or have an emergency expense that requires you to dip into your savings, you’ll be in good shape. An emergency fund allows you to be financially stable and avoid big, unexpected expenses.
How Much Money Should We Have In Our Emergency Fund?
The amount you have in your emergency fund will depend on your situation and goals. If you’re aiming to be debt free, you’ll need to have an amount that covers at least three months of expenses.
It’s also a good idea to have a little extra, just in case something unexpected comes along, and you need to put your emergency fund to good use for longer than expected.
When Not To Use The Emergency Fund?
You should not use your emergency fund for normal expenses. You should only use it for emergencies that are not covered by your insurance plan or are not expected.
This includes medical expenses, funeral expenses, and other expenses that are not covered by your current insurance plan, or are circ*mstances which means you need extra money, and fast, without having to consider borrowing the money.
5 Steps To Start Your Own Emergency Fund
Decide Where To Keep It
The first step towards building your emergency fund is to decide where to keep it. You want to make sure it’s in a safe place, where you won’t be tempted to spend it.
A lot of people choose to keep their emergency fund in a savings account, as it’s easily accessible if you need it. However, you may want to consider keeping it in a separate savings account to your existing savings accounts, so you earn interest on the money, but also not be tempted to touch it.
What Is Going To Be Your Saving Schedule?
The next step is to come up with a savings plan. You need to decide how much you’re going to save each month, and make sure you stick to it.
It’s a good idea to automatically transfer the money into your emergency fund account, so you don’t have to think about it. This way, you can make sure the money is there when you need it.
Build An Emergency Fund Quickly
If you want to build your emergency fund quickly, there are a few things you can do.First, try to put away any extra money you have. This could be from birthday gifts, tax refunds, or work bonuses. Any little bit helps!
You can also try cutting back on expenses, so you have more money to put into your emergency fund. This could mean eating out less, going on fewer vacations, or cancelling your cable subscription, but it’ll help you build up that emergency fund as soon as possible.
Prioritize Your Savings Goals
When you’re trying to save money, it’s important to prioritize your savings goals. You may have multiple goals, such as saving for retirement, a down payment on a house, or your child’s education.
It’s a good idea to focus on one goal at a time, so you can make the most of your money. Once you reach your goal, you can move on to saving for the next one.
Start small, and don’t try to save for everything at once. You’ll be more likely to stick to your plan, and you’ll be less overwhelmed.
Make More Money
When you’re trying to save money, it’s important to prioritize your savings goals. You may have multiple goals, such as saving for retirement, a down payment on a house, or your child’s education.
It’s a good idea to focus on one goal at a time, so you can make the most of your money. Once you reach your goal, you can move on to saving for the next one.
Start small, and don’t try to save for everything at once. You’ll be more likely to stick to your plan, and you’ll be less overwhelmed.
An emergency fund is an important part of financial stability. It’s there for you when you need it most, and it can help you avoid going into debt. It will take time, and will require you to make sacrifices, and find ways to save money that normally would go to other things.
Furthermore, you need to be consistent. You will make progress and get closer to your goal if you consistently contribute to your emergency fund – it will take sacrifice, but the peace of mind it’ll give you, will 100% be worth it.
