Usually, being unprepared for an unexpected financial situation can be the worst situation to be in.
For example; Your car engine suddenly stops working, causing you to need major repairs.
Your water heater may stop working just as winter is peaking and you don’t have the funds to pay for the repairs.
An emergency fund can become your best friend in those situations.
An emergency fund provides cover in case of an unexpected and uncontrollable situation. It is your last resort in case of an emergency, such as a car accident, sudden home repairs, or job loss.
It’s important to be optimistic about life. But you should never go into the battlefield unarmed.
An emergency fund is essential today because it ensures that you are financially ready for any storm life may throw at you.
What’s an emergency fund?
It’s as simple as that. An emergency fund is a fund you set up to cover unexpected expenses. An emergency fund is a savings account that you can use to cover unexpected expenses such as a medical emergency, a vehicle breakdown, or job loss.
An emergency fund provides the necessary protection for unexpected situations. You should have an emergency fund.
An emergency fund is basically your umbrella in case of a rain shower without warning.
Emmergency events are unlikely to happen, but it is better to be safe than sorry. You can use the emergency fund for any purpose, provided that it isn’t used to party or buy designer pieces.
As the name suggests, your emergency fund is for situations that are out of your control and require immediate attention.
These are some questions that you should answer before you begin building your emergency fund.
1. What is your goal? What amount do you want in your emergency fund? This question is not easy to answer. You will need to decide your savings goals.
Your financial goals and lifestyle will also play a role in this decision. Be realistic about your goals and don’t expect to make huge financial sacrifices.
It is important to start with something. You should aim to start with $1,000, and gradually increase it.
You want to ensure that your emergency fund provides enough money to cover all of your monthly expenses for at least six months.
2. Are you able to create a budget that includes family? To be able to save for an emergency fund, you must have a budget. Your financial success can be guided by a budget that keeps you in control of your monthly expenses.
3. You should have a savings account. Do you have one? This is where your entire emergency fund will be kept. Your savings account should be kept untouched and only used for the purpose it was created. Make it a point that you open a savings account at a bank that offers interest on the money saved.
Creating an emergency fund
It might seem daunting to start with $1,000 for your emergency fund. It’s not difficult to create one if you have the right intention.
These are some quick ways to build an emergency fund.
1. Reduce unnecessary expenses.
You can imagine how much money you could save by cutting down on unnecessary expenses. Make your own coffee instead of buying it from the store.
To avoid having to buy bottled water, bring water with you whenever you travel outside.
2. Sell what you don’t use
You can make money by selling any items you no longer need. You can also sell old clothes, books, and shoes, as well as cooking utensils and toys, to make extra cash for your emergency fund.
3. To make extra income, you can start a side business.
The internet has made it very easy for people to earn money from their own homes.
Aside from a full-time job many people also have a side hustle to make extra money.
4. You can ask for a raise in your salary
If you don’t have enough money for an emergency fund, a salary increase is a good idea.
You can either ask for a raise at your current job, or switch to a better-paying position.
5. Don’t forget the change!
Don’t forget the change when you pay your bills outside, or while shopping at the grocery shop. Make it a habit to save the change when you get home. Even if you only have a few dollars to spare, it is still enough to make a huge difference.
6. Take on a frugal lifestyle.
When doing this, you don’t need to be poor. What I mean is: do not cut your spending on even basic necessities like water, food. You just need to be smart about your money.
7. Take on a Savings Challenge.
If you feel your finances are getting out of control and you don’t have the money to save for an emergency fund, consider taking a savings challenge for one month.
Even if it means making some adjustments, save every penny you can. You can cook a meal at home instead of eating out.
Take public transport to get to work and cancel your subscription to some entertainment apps. You can save at least $100 by taking this small step.
8. Adjust your budget
Look at your budget and see if there are some areas you could tweak to increase your savings. Are there ways to reduce your heating bills? Are you able to save some money when shopping at the grocery store?
Making small adjustments to your monthly budget can make all the difference in saving money that will help you build an emergency fund quickly.
Even if you don’t use it, having an emergency fund will provide you with mental peace and help you feel prepared for anything.
Not having an emergency fund is dangerous and can permanently cement you in debt. If you don’t already have an emergency fund, start building one today.
Even if you start with a small amount, it will make a huge difference in achieving your financial goals.