How to save money for your Emergency Fund

Start Small to Build an Emergency Fund.
Emergencies and unexpected expenses can occur when you least expect them, which is why saving money in an emergency fund is critical to good personal finance. Life is full of peaks and valleys; a hot water heater leak can flood a room, your vehicle may break down and require costly repairs, or you may contract an illness that results in costly medical bills. We can’t always be ready for the physical or emotional challenges that life throws at us, but we can be ready to pay the bills.

An emergency fund is essentially the money you’ve saved up to help you maintain your daily life while dealing with an emergency such as an unexpected vehicle repair, job loss, or illness. If you find yourself in a financial bind, emergency savings will provide you with a safety net to fall back on until you can get back on your feet. However, if you don’t have any emergency savings, you’ll most likely end up borrowing money from family and friends, ignoring your existing payment obligations, or charging purchases to a high-interest credit card, all of which can lead to debt.

It can be difficult to save a few dollars from each pay check for an emergency savings account, especially if you’re struggling to make ends meet. However, it is for this reason that increasing your emergency savings should be a priority: if you have little or no emergency savings, an accident, illness, or job loss can financially devastate a family.

It takes discipline, time, and some sacrifices to build an emergency fund, but it is doable. We’ve got you covered if you’re not sure how to save for emergencies. Here are some ideas for creating an emergency fund so you can weather the financial storms that life throws at you.

Divide your savings goal into smaller steps.

Some financial experts recommend saving for 3-6 months of living expenses, and while this is certainly a worthy goal to strive for, building an emergency fund of this size is a daunting task, and as a result, many of us give up before even getting started.

Savings take a long time to accumulate, so it’s important to start small and work your way up while staying motivated. Some people set a lofty goal for their emergency fund right away, only to discover later that it will take much longer than expected. They will become discouraged along the way and eventually give up.

As a result, it’s critical to start small – perhaps $500 or $1,000, which can cover a car or home repair – and work your way up. If you saved $40 from each pay check for a year, you’d have $1,000. Once you’ve met your goal, set another – say, $2,000 – and over time, you’ll have amassed a sizable emergency fund.

Allow yourself time to build an emergency fund and don’t get discouraged. Even if you save $10 per week for a year, you’ll have over $500, which makes a huge difference when you’re dealing with an emergency. What matters is that you take action and begin saving, no matter how small, and that you remain consistent. Rome was not built in a day, and neither is an emergency savings fund.

Open a Separate Emergency Savings Account

Once you’ve decided on a savings goal, the next step is to open a savings account that is separate from your daily spending account. Look around for a financial institution that can provide you with a savings account with a reasonable interest rate and no – or low – fees.

Do your homework and investigate any fees and charges you may incur by opening an account with a specific financial institution. The amount of interest you earn is something to consider, but it is not the reason you are doing this. Also keep to mind to check money availability term. You do not want an account that require one full week to transfer your money back ! Especially in these day of automatic and computerised “same day” transaction.

Having a separate savings account creates a psychological barrier between the money you can and should touch. If you combine your emergency fund funds with the funds in your regular checking account, you will be more tempted to spend it because you will see it on a regular basis and it will be easily accessible.

Take some precautionary measures when opening an emergency savings account to keep your money safe from yourself. You can open an account with a bank other than the one where you do your regular banking. If you open an account at your regular financial institution, make sure it is not linked to your bank card so you are not tempted to make ATM withdrawals.

Make Deposits Into Your Savings Account Automatically

Now that you have an emergency savings account, the next step is to automate deposits so that they go directly into your savings account. You can do this yourself by using online banking or going to your financial institution.

The simplest way to approach this step is to think of your emergency fund as a bill.
Include your fund contributions in your budget and make a payment at least once a month, just like you would for other bills. If you think of your fund as a bill, you’ll be able to prioritize where your money goes.

You won’t have to remind yourself to transfer money to your emergency fund if you set up automatic payments, and you won’t be tempted to spend it on something else. You can’t spend money if you can’t see it in your checking account!

What matters is that the amount you contribute to your fund is affordable, realistic, and in line with the savings goal you established earlier. The smallest amount can help you build a small nest egg while instilling a savings mindset and the discipline you need to reach your goals. Remember that the key to building a sufficient emergency fund is to pay yourself first.

Put Extra Cash Into Your Savings Account

Once you’ve established your savings strategy, you can sit back and watch your emergency fund grow. However, it won’t hurt to supplement your fund with any extra cash you come across, whether it’s from a tax refund, cash gifts, rebates, or a workplace bonus, to help you reach your goal sooner.

When you receive an income tax refund or a bonus at work, instead of spending it, you can put it toward your emergency savings account. Use this money to supplement your emergency fund, but don’t rely entirely on it to build it. You can put a portion of each windfall like this into your savings account and use the rest to treat yourself.

If you’ve finished paying off a credit card or a car loan, put the money you were putting towards it into your emergency fund. Your budget will not notice a difference, but your emergency fund will!

I hope you have found the above information useful and will help you on your journey to a better life. If you have any feedback or want more information, please do not hesitate to leave a comment.

“Yesterday was the last day of your past. Today is the first day of your future.”

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *