How many times do we hear about saving money for a rainy day? Remarkably, financial surveys show that more than 50% of Americans still don’t have enough funds to cover an unexpected expense.
What is an Emergency Fund?
How prepared are you if you are hit with an unexpected financial emergency? One of the keys to achieving financial health is to be prepared for unexpected expenses.
The purpose of an emergency fund is to help you cope with financial expenses in times of crisis, illness, loss of job and other unforeseen emergencies. Setting aside an emergency fund is crucial so you can avoid ending up with enormous debts in unfavorable circumstances.
How Much Should You Set Aside for an Emergency Fund?
Building an emergency fund can be difficult, as many people can struggle in our up-and-down economy and a huge number of households are living paycheck to paycheck.
Ideally, setting aside funds for six months, or at least three months’ worth of your expenses is recommended. This amount should help you cover your expenses as you get back on your feet in the event of a job loss or medical emergency.
How to Start Building an Emergency Fund
If you think about having an emergency fund equaling six months’ worth of your expenses, this can translate into a huge figure. Saving up this much money may seem like a daunting task, however you do not have to build an emergency fund all at once. It can be built up without squeezing too much out of your budget. What matters most is your willingness to get started and a commitment to achieving your emergency savings goal.
Check out some tips below on how you can start building your own emergency savings:
Set your monthly savings goal.
Decide how much you want to save. Set a specific savings goal and determine how much you can allocate from your monthly income to reach your goal.
Take it slow.
Building a huge emergency fund can feel overwhelming. So, start with small milestones. The key is to remain focused and push yourself until you achieve your goal.
Set up a separate account for your emergency fund.
By setting up separate account for your emergency fund, you won’t be tempted to use the money on your regular expenses.
Cut down your expenses.
If you are serious about building a solid emergency fund, you’ll need to make sacrifices on some of your current spending habits. You can do this by cutting down on expensive outfits, entertainment and unnecessary splurges. You can also try cooking your own meals and paying attention to where your money is going – or in other words, simply living a more frugal life.
Stick to your budget plan.
Create a budget and commit to it.
Use your smartphone.
Install a budget app to help keep you track of your expenses.
Think outside the box.
To maximize the amount of money you’re putting away in your emergency fund, you may want to earn extra income to accumulate more cash. Use your free time to earn extra income. Set up a garage sale, rent out your spare room on AirBnB, or offer a tutoring or babysitting service. The extra cash can go a long way to building up your emergency fund.