The other day I was having a conversation with one of my buddies from college. He told me that his friend’s job got shut down unexpectedly. She was able to find employment within a few weeks, but she went from making an amount in the mid $30,000’s to $7.75 an hour. That would be rough for anyone. It would be even tougher if they didn’t have an emergency account. Unfortunately, she didn’t have one. She also has a child that she is taking care of. Luckily, she had family and friends to help her out during those few weeks she didn’t work. If she had an emergency fund, she would not have had to borrow from her family and friends. Today we are going to talk about how to build an emergency fund.
I know some people reading this can relate. Some people have a fully loaded emergency savings account, while some don’t. If you don’t today’s post is specifically for you. Everyone needs to know how to build an emergency fund. I’m about a throw out a random number. Let’s set $500 as an amount for someone trying to start their first emergency account. $500 is not that much money, but we all have to start somewhere. What would you do to get there? There are several things that you can do to make this a reality.
Assess Your Situation
The first thing that you should do is assess your situation. You need to ask yourself a few questions. Why haven’t you been saving any money in the past? Do you spend your money on random things? Do you live in the moment instead of planning for the future? These are a few questions that you need to answer. Once you answer the questions you should now have a better understanding of why you don’t have any savings.
Create a Budget
The next thing that you should do is create a budget. You have to know what you’re spending your money on. A budget helps you allocate your money. If something isn’t in your budget, you should not spend your money on it. Two tools that I use to help me review my budget are Mint and Personal Capital. They will help you get on the right track.
Cutting costs is the third thing that will get you on the how to build an emergency fund track. Eliminating things such as cable, gym memberships, or magazine subscriptions will allow you to save more money. Also, if you like to buy clothes, you should either add that to your budget or buy things when they are on sale.
Automate Your Savings
Saving automatically is one of the easiest methods to ensure consistent savings that will begin to grow over time. A common approach to that is setting up recurring transfers via credit union or bank so that money moves automatically to your savings account from your checking account. You can determine that amount and frequency, but after setting it up, get ready to make consistent contributions to your savings. I suggest you should consider your balances so that you will not incur overdraft fees when there are insufficient funds in your checking account at that time of automatic transfer. And to keep you updated, consider creating automatic calendar reminders for when to check your balance. Although anyone can consider this option, it is particularly for those with a consistent income.
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Save Through Your Job
Another approach to saving automatically is through your employer. Besides employer-based contributions made for retirement, you may have an opportunity to divide your paychecks between your savings account and checking account. If you are paid via direct deposit, ask your employer to know if you can divide it between two accounts. If you have that urge to spend your paycheck on receiving it, here is an effortless approach to putting a portion of the money aside without thinking twice. Again, I advise this for people with a consistent income. If you are getting a regular check from your employee, put it into good use by putting a part of it into savings automatically.
Select a Place to Keep Your Emergency Fund
When you are wondering how to build an emergency fund, the goal is to have swift, effortless, and easy access to your money. To achieve that, try keeping at least the amount that’s worth the first three months of expenses in a high-interest savings account, which will give you easy access at any date. Subsequently, you could keep any surplus funds into high liquidity, low-risk channels like money market account. When you want to start building an emergency fund, give it careful thought before investing in securities. That is because unwinding any positions to get back the money will likely take a few days.
A financial advisor at cinch financial, Kerry Moraity, advised that not only should you save your emergency cash in a different account from your regular checking, but it is even more preferable to keep them at an entirely separate bank. That considerably reduces the temptation of withdrawing from them while checking the other account balances.
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Work At It
Another thing you should when you are learning how to build an emergency fund is to work at it. If you don’t have enough money in your budget, it’s time to get on your grind. You can get a side hustle such as selling items on eBay or doing some freelance design or writing for people. If you don’t know of any side hustles that you can do you can find a part-time job. There are numerous part-time gigs out there. You just have to look for them.
Below are some side hustle related posts for you to check out:
Continue Building When Needed
Finally, it is vital to recall that just because you might have achieved your long-term purpose of keeping an emergency fund, you should not discontinue. Your situation could alter via marriage or childbirth, and your expenses might arise as a result. And when that occurs, there should be an account for it. The funds you have build might not be enough.
Furthermore, if you need to withdraw from this account at any point in time, then you will also need to start the procedure to replenish the cash you took out.
Anybody can do these suggestions. If you’re struggling right now, you can change that today. I believe in you. We all had to start somewhere. It just comes down to how bad you want it or not.
Do you have any other tips on how to build an emergency fund?