Starting An Emergency Fund.
What would you do if you faced an emergency? Your car breaks down or your water heater breaks. Now what? Do you have the money to pay for it? What would happen if you were to lose your job? Could you cover your expenses without a paycheck? Are you shaking your head, wondering what you’d do? You need an emergency fund. This is a separate fund from your checking account, a fund that you won’t touch unless it’s an emergency.
What is an Emergency Fund?
As said above, an emergency fund covers you should the unexpected happens. Your emergency fund should have between 3 to 6 months of your expenses in it. This way if you lose your job or an unexpected thing happens, you’d be able to survive for at least a few months, even without unemployment checks.
Here’s an example. If your monthly expenses are $1,000, your emergency fund should have between $3,000 - $6,000 in it. If you’re just starting, aim for $3,000. If you have an established account, go for the higher end – it’s better to be safe than sorry, right?
Setting your Emergency Fund Goals.
Are you wondering how you’d ever save that much money? Start small and work your way up to the bigger goal. For example, if you don’t have any money saved yet, set a goal to save $1,000. While that won’t cover your expenses for more than one month, it’s a start. Once you hit that milestone, set your next goal.
You could just go for the 3-month milestone or something in between. Set a goal that won’t overwhelm you. If you thrive on setting big goals and reaching them, go for the 3 to 6 months of your expenses goal. If you prefer small wins to motivate yourself, break it down to a smaller goals.
How to Save for an Emergency Fund?
You might think to yourself, ‘How will I ever save for an emergency fund if I live paycheck-to-paycheck?’ It’s not as hard as it sounds. You just need some dedication and a detailed plan. Start with a budget. If you operate without one, you do not understand where your money goes each month. Create a plan for your money and see where saving fits in.
Do you have room than you thought to put money away? Sometimes it just takes cutting a few expenses or negotiating a few bills to put money away. If you need something more drastic, consider refinancing a loan, shopping around for cheaper insurance, or cutting down on your spending. You could even take on a second job or start a side gig. The sky is the limit if you get creative.
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We aren’t limited to our 9 to 5 salaries and we aren’t stuck with the bills we have. With a little negotiating and creativity, you may find yourself in a much better financial position than you thought. If you don’t have an emergency fund, take the steps to start one today. Even if you only save $10; it’s a start. Get the interest compounding and continue your deposits, changing your budget every day so you can achieve the ideal emergency fund too.
