Today I want to dive into the topic of having an emergency fund. As you know financial matters are an ongoing theme in the lives of most people and as a result many of us are always on the lookout for new and more effective ways to manage our money, save more, spend less, etc.
This line of thinking has led me to take into further consideration, how much money we really have set side for future expenses – the ones we are planning for as well as the ones that are likely to catch us off guard.
What is an emergency fund?
What I found out is that in addition to the money you are saving for various financial goals – buying a house, saving for a new vehicle, planning a trip, and so on, an emergency fund is another sum of money that you set aside to use in the case of an emergency. An ‘emergency’ situation that could greatly affect your life and your finances, such as an illness with high medical costs or the loss of wages. You could also find yourself suddenly unemployed, without a consistent paycheck for whatever reason, as well as needing to make unexpected car or home repairs – to mention a few.
We all hope that we never have to encounter any difficult experiences such as these, however the reality of the matter is that most of us will have to face an event or two like this, throughout our lives. Whatever the major expense may be, it could come out of the blue and you may find yourself scrambling to find the funds you require.
With that said, if you have a emergency fund already put in place, in the event you do find yourself in a situation like this, you will have a financial resource to fall back on. Having an emergency fund is also a good way to prevent adding to your debt and charging these expenses to your credit card. Typically, emergency funds should hold at least 3 to 6 months of household income to make sure you have the adequate funds.
I have definitely heard of emergency funds before, however sometimes it is difficult to put away extra money into an account, especially when all of our earned income goes towards daily expenses and a savings account that is meant to serve as retirement income and other long-term fiances needs. Although, now I am more determined to try and save money towards an emergency fund for our family, so we have yet another safety net.
So, how am I going to go about doing this? With a bit of legwork, I have found some helpful tips to help start an emergency fund of your own.
1) Examine Spending
The first tip is to take a look at your monthly expenditures. Knowing how much you are spending at every turn will help you to identify how much money you will require to cover up to 3 -6 months of your household expenses. As I mentioned previously, this will inform how much you should strive to have in your emergency fund at any given time.
2) Start Saving
There are many different methods that you can put into action that will enable you to start saving money. Here are some ideas of areas where you can save some extra money and build up that emergency fund.
• Opening another savings account that is only for emergency income. You can set aside a specific amount on a daily, weekly, or monthly basis, for example. This set amount can be automatically transferred into your account, so you don’t have to make this separate transaction each time.
• After paying off your monthly credit card bill and other bills, you can transfer some of the extra cash into your emergency account.
• You can also transfer some of the income you have received back in tax returns into this account, as well as any bonuses you may have received from your employer that year.
• When using your debit card to pay for groceries, you could also ask for a little bit cash back that you can use to beef up your emergency fund.
• Another way to try and save a little bit more money each month, is to cut down on some of your unnecessary expenses. Try using coupons or buying less expensive brands when you can. There are many areas, unique to each of us where we can try to limit ourselves and even going without a certain item or service for a certain length of time can help.
There are many different strategies for saving a little bit of extra money, and even if it is only a small amount here and there, you can save a quite a good sum of money before you know it.
3) Viewing your Emergency Fund as an Ongoing Bill
One last tip would be to view your emergency fund as if it were yet another regular bill you have to make consistent payments towards. This way, you can stay motivated to make consistent payments, without letting any payments lapse. Paying off credit card and other bills is a reality, and even if you are paying down your debts, try to set aside some money as well for your emergency fund.
With all of the new information floating around in my brain, instead of feeling more overwhelmed, I actually feel a lot more prepared to start building an emergency fund for our family. I think even if we start out small, that is OK, as long as we are working in the right direction. Once in a rhythm, I am confident we can start to more effectively add to our fund over time and this gives me huge peace of mind.
Good luck building an emergency fund of your own…
