We all experience financial emergencies, like a job loss, car repairs, medical bills, home repairs, or the many other financial surprises life throws your way. The Covid-19 crisis has not only left many people uprooted and confused about what to do next, it also taught many a valuable lesson about the importance of physical and financial health.
Whether you have to make up for lost income, cover a surprise bill, or just want a better way to save for your future, you’ll be glad to have followed one or more of these strategies to build an emergency fund.
Even if you currently have nothing set aside for a rainy day, it’s as easy as starting with a few dollars a day.
Know your financial state
Knowing where your finances stand can help you determine how much you should save for your emergency fund. The amount you need depends on your situation. A best practice is to calculate your monthly expenses and determine how much you should set aside to cover yourself for three to six months during an emergency. Doing this gives you an idea of how much you need to save.
It’s important to know where your money is going so you can find savings opportunities. Budgeting will allow you to maximize income and find ways to reduce or manage your spending.
Set your monthly goals
Setting goals each month will help you get into the habit of setting aside funds regularly. One way to do this is by setting up automatic transfers into a savings account each time you get paid.
Putting your hard-earned money into savings is great, but you also want to make sure that it’s in an account that will maximize your dollar. Make sure you look for accounts that have competitive interest rates.
Creating a system allows you to be consistent. You don’t have to start with a substantial number, however, when you choose the amount you want to save, stick with it. If you can afford to add more occasionally, then it will help your funds grow faster.
Building your fund
Building up your emergency fund means you need to be a frugal spender and a savvy saver. When you get $1 and $5 after breaking a $20, put it in a jar, or ‘piggy’ bank you have at home. When the jar fills up, move it into the account you have set aside for your emergency fund.
If you don’t carry cash, you can try mobile savings apps that make automatic transfers based on your anticipated transactions. Some banks have cash back rewards for purchases to certain restaurants and stores. Instead of spending them, add them to your savings to increase your savings rate.
When you’ve reached your max for what you can save and need opportunities to set aside more, finding a side hustle is a great option to earn additional income. By taking advantage of a side hustle, you can put the money you make into your emergency fund.
It’s easy to start building your emergency fund, but to continue to do consistently is the hard part, so start small and aim high.
Monitor your progress
Be sure to regularly check your emergency fund. This can mean getting balance notifications sent to your email or phone or going to your nearest banking center. Monitoring your progress can encourage you to keep going and stick with those healthy habits.
Don’t miss the opportunity to recognize your accomplishments. You can find new ways to treat yourself, and once you’ve reached your goal of 3-6 months, set another one.
When you are saving, make sure you draw a line between your emergency fund and everything else. Once you’ve reached your goal, it’s a good idea to start another savings account to stay on track for an even better financial outlook.
Everyone needs to save for the unexpected and having an emergency fund can mean the difference in weathering the storm versus going deep into debt. It’s never just about how much you make, but how much you can set aside.
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