Momma always said, never put all your eggs in one basket. Ideally you should have 3 baskets. One for savings, one for things you wish for and the ever important emergency fund. This is super important to know and it’s one of the major building blocks of your solid financial structure. How can you start an emergency savings fund fast when you’re barely getting by to begin with?
“There are plenty of ways to get ahead. The first is so basic I’m almost embarrassed to say it: spend less than you earn.” -Paul Clitheroe
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But with that being said we don’t always abide by this and sometimes life gets in the way.
In this post find out the basics of setting up your emergency fund fast.
Budgeting and paying off debt are great strategies. They definitely require hard work and dedication.
But what happens when the unthinkable happens?
One bad situation can erase all of your hard work and planning if you don’t have money in place for emergencies. Here’s how you can be prepared.
What is an Emergency Fund?
An emergency fund is money that is saved to help pay for large unexpected expenses. The goal is to have money set aside to cover the costs experienced in an emergency situation.
This can include things like:
- job loss
- medical emergencies
- car accident
- car repairs
- home repairs
- family emergencies
No one wants to think of any of these types of things happening to them. However, it’s best to be prepared financially just in case they do.
The Benefits of Having an Emergency Fund
Having an emergency fund provides peace of mind that you can handle the short term bumps that show up along the road of life. It means that you are not living paycheck to paycheck and that you have a little cushion for when the unexpected happens. That’s why it is important to make saving for an emergency a priority (after you have paid off any high interest rate debt first).
Follow these steps and you’ll be well on your way.
How Much Money Should You Have in Your Emergency Fund?
Most financial advisors suggest that an emergency fund should have enough money in it to cover at least 3 months of household expenses. However, six months of expenses is even better. Currently, you may wonder why on earth you would need save 6 months of expenses. However life can throw you some curve balls. Unemployment, unexpected medical bills, natural disasters or an auto accident are all events that no one can predict and that can cause you, to not be able to work. Your first step in building an emergency plan is finding out how much money you will need to put into your fund.
How to Start Your Emergency Fund
First get a handle on what your monthly expenses are. In an emergency situation you would still need to keep up most expenses for housing, food, utilities, and other necessities. Track all your expenses for at least 3 months to get a handle on what you are spending each month.
Remember that not all expenses are fixed so that if the unexpected does happen (you or a spouse lose a job, for example) you should be able to make some adjustments to free up some extra cash.
For instance, you could cancel your cable or gym membership. However, it’s important to be realistic here. If your family grocery expenses per month are currently $500 it will be tough to get away with a $200 budget – but it is possible!
Fast Way to Save $1,000 for Your Emergency Fund
Now that you have a savings goal in mind, set up a bank account for your emergency fund. I recommend a separate account just for the emergency fund, so that you can track your savings progress better.
Start with a goal of 3 months expenses and work up from there, so multiply the monthly expenses you came up with in Step 1 by 3.
Start saving. In order to make this successful you must make savings automatic. You may be able to arrange automatic payroll deductions through your employer. If not, set aside a little bit each week and make deposits once a month.
Starting with as little as $10 a week can be helpful. If you find it difficult to scrape up some extra cash, try collecting your spare change in a jar at the end of the day. This may seem like an old-fashioned trick, but it does works.
There are also apps that can help you like ‘keep the change’ and others.
Watch your savings grow. Don’t get discouraged if it seems slow at first. As long as you are saving something on a recurring basis, your emergency fund will continue to grow and as it does, you will start to feel the added security of having this money set aside.
If you follow these steps you will be well on your way to ensuring that you have something set aside for when life throws you a curve ball.
Now that you are committed to accumulating an emergency savings fund, make sure you stay the course.Treat this account as sacred and not to be touched unless a truly unforseen event comes your way.
Other Amazing Ways to Save A Lot of Money
Get a Side Hustle
Side Hustles are an amazing way to earn extra money. I turned my side hustle – blogging, into my full time gig! More people are working freelance/side hustle jobs nowadays to make ends meet. Why? Because they’re flexible, pay decent rates, don’t require an extraordinary amount of skill and can be done part time or full time at almost any age!
And I’m not talking about survey sites, even though there are some definite legitimate ones that do pay really well. Below are 20 side hustles that you can earn money from to pay off debt, put towards a future vacation, travel, or your emergency savings fund.
Read about 20 side hustles that pay $3,000 or more per month here.
How to Embrace Budgeting and Live Frugally
We all want to be rid of the burden of having debt in our lives. Heavy personal debt can be very frustrating and weigh on us daily to the point where we lose sleep over it and believe that it will always be a part of our lives. Fortunately this doesn’t have to be the case!
Have a Safety Net
Your “Safety Net” is your savings account. This is where you put a percentage of your salary (at least 10%). Your goal is to build this account to exactly 3 months worth of expenses.
The stress you relieve when you attain this is beyond words.
After you have your safety net, the 10% of your salary then flows into your other accounts, in a ratio you decide. That is what you start investing. The actual areas are optional, you could substitute “stock market'” for “property investment”, or whatever you want. The point being that AFTER you have your safety net, then and only then do you start building your wealth elsewhere.
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