How to save money for an emergency fund? Some Tips
Have you set up your emergency fund? If not you must know that emergencies and unexpected expenses can strike when you least expect. This reason is enough for you to save money for an emergency fund. Life has peaks and valleys; a leak from a hot water heater can flood a room, or your vehicle might break down and need expensive repairs. There may be a situation when you or a close family member may be down with an illness that could result in costly medical bills. It is true we may not always be prepared for the physical or emotional challenges life hands us, but we can be prepared to handle the bills.
What is an emergency fund?
In simple terms, an emergency fund is the cash you have saved up for the sole purpose of helping you maintain your everyday life. It is mainly meant to help you financially effectively manage an emergency. This could be an unexpected vehicle repair, a job loss, or an illness. If you face a financial crunch, emergency savings will help you to fall back on until you get back on your feet. Without an emergency fund, you could end up borrowing money from family and friends. You might also neglect your existing payment obligations, or putting purchases on a high-interest credit card, all of which can drive you into debt.
It can be hard to squeeze out a few dollars from each paycheque to funnel into an emergency savings account. This is more so if you’re barely able to make ends meet. It is therefore essential to save and create an emergency fund, before any such crisis financial situation arises. The following are simple tips towards the same:
Open a Separate Emergency Savings Account
It is important to open a separate Savings Bank Account for the purpose. This is what will help you set a priority towards a cause and also help to monitor it. This Account should be kept separate from your daily spending account. Open the account is a financial institution that can give you a savings account with a decent interest rate and no – or low – fees.
Break Down Your Savings Goal into Smaller Steps
It is recommended by some financial experts for saving for 3-6 months worth of living expenses. This is definitely a goal to aspire for. But building an emergency fund size of this magnitude could indeed appear to be a daunting undertaking. So instead it is better that you break down this goal into smaller ones and work towards this goal to make it more achievable.
Automate Deposits into Your Savings Account
Once you have opened the Savings Account designated specifically for emergencies, the next step is to automate deposits so that they go directly into your savings account. You could do this yourself through online banking, or by visiting your financial institution.
The best way is to treat this transfer as a bill and ensure the discipline to regularly contribute at specific intervals to build up your emergency fund. Set up small targets to achieve your financial goal.
Boost your income and cut down on expenses
You must look for ways to make extra income and cut back on your expenses to boost your savings in your emergency fund. This is what will ultimately help you achieve your financial goal.
In conclusion, we can say that now that you are aware of creating an emergency fund, it is best you start saving for emergency fund sooner rather than delaying the entire process.
