Emergency funds are crucial to a stable financial situation and ensuring your financial freedom. Do you struggle to save money? If yes, no need to be embarrassed. It is a normal thing many people go through, which is why the idea of an emergency fund is essential.
The building of an emergency fund should be one of your first financial goals. It takes a lot of financial discipline and a large chunk of commitment. Making that commitment is often tricky, especially with a family where something pops up without even expecting it.
However, a certain amount of work needs to be put in so that an emergency fund can help you in your time of need.
If you have decided to start an emergency fund (which I believe does not need much deciding “Just do it”), I have made a guide to help you in your journey.
1. Set Up A New Account At A Different Bank
We have to admit we do (well, some of us) get out of control, especially with spending. I can not stress this enough you should have a different bank with a savings account.
You may be wondering why. Well, mostly because it prevents you from spending excess amount and it is easier to have a separate bank for a particular goal.
The idea is to prevent you from spending money from your emergency fund unless you have an emergency. This indeed means not using it for anything else.
It is hard to even for me to do so because well we all are attracted to deals and well-buying something we need or want. However, we have to put the real goal into perspective.
When you open a savings account, it should be a High Yield Savings account. This will help you increase your savings by taking advantage of a higher interest rate. Try out CIT Savings Builder Account as a good option.
2. Set A Goal For Your Emergency Fund
Okay, making a separate account is done, but how much should we or need to save? Is there a specific number we need to aim for?
To start with, it depends on each family or person and what their requirements are. It could be $20,000 or more, depending on your base monthly expenses.
An excellent way to get started would be to set a goal. I would recommend saving up to 3 to 6 months’ worth of savings. So, to start, assuming you know how to budget, take out the average amount of spending for around six months or the last couple of months. After that, multiply by the number of months you want to save.
Let us take an example. George has average spending of $5,000 per month and is wishing to save for six months’ worth of expenses. So, he multiplies $5,000 by six, which equals $30,000. So, in other words, he has to save up to $30,000 to cover expenses for six months.
A good plan would be to save a bit more than the amount you have calculated so that you are on the safe side. When you are calculating the emergency funds, you also have to consider your family size increasing or decreasing, for that matter.
3. Do You Have A Budget Yet?
The main point of having an emergency fund is not to spend but save money. Having a budget, in other words, is being financially disciplined. Having a budget plan on paper is always friendly and comfortable and could help you set a goal, which is the previous step.
Knowing how much you need to save is well essential, and planning a budget will help you figure out how much you need to reach your intended goal. We often disregard having or making a budget, and it does seem tedious.
Budgeting will help you calculate how much you need to save each month from reaching your desired goal.
On the contrary, if you do not want to make a budget on paper, maybe try one of these apps to make a budget. Personal Capital is one of them which I would recommend since it is fantastic and is a huge time-saver.
4. Save, Save, And Save
I can not stress this enough, but save as much as you can. After you create a budget, you should know how much you need to and can save each month. This is often difficult as you have to do the actual job and prevent yourself from spending first. The aim is to save first and spend later.
Spending on necessities is important such as rent, food, insurance, or transport, but try to save the rest. At the beginning of the month, when you receive your paycheck, save money before you spend a dime.
This does not mean you save all your money; that is why you make a budget, so you know how much to save and how much you need for your necessities.
This is the way forward to moving up the ladder to reach your target for an emergency fund. This may sound crazy, but trust me, it works. You have to be smart about what you spend on; if there is even a little thing that seems unnecessary, do not buy it. By the end of the month, you will be able to save more than expected.
5. Get a Side Hustle
This is where the big bucks come. You do not necessarily have to have one source of income. Having several sources of income is a fantastic asset for almost anyone.
Getting a part-time job is a great idea, but well it is much work, but it is an option you can consider. Nowadays, websites like Fiverr, Upwork, Monster, Freelancer.com, or Flexjobs can upload a gig and earn a lot of money.
Check out my article on Fiverr, where I explain how to become a TOP SELLER, and you could end up earning thousands of dollars if not hundreds.
Another way to earn quick cash is to participate in surveys, which is by far one of the best ways to do so.
There are many money pinching apps that help you save money. One of them is called Acorns, which is an investing app that helps you earn some extra cash.
It is not always necessary to start a side hustle, but I would highly encourage having two income sources. Side hustles are an incredible way of earning some cash real fast.
Conclusion
Saving for an emergency fund can be daunting, especially when you need 3 or 6 months of expenses. With a little planning, it does get easier with time, and I believe you should do it for yourself and your loved ones. Emergency funds can prevent debt, which is well what almost everyone wants to avoid.
