Financial emergencies are a natural (albeit unenjoyable) part of life. They happen all the time! Whether the boiler breaks, the car won’t start, or you need unexpected medical treatment…the list of surprise expenses goes on and on.
The trick to minimizing the damage? Being prepared for them in advance.
That’s where starting an emergency fund comes into play. Unlike the 70% of people in America who have under $1000 in savings, you can set a sizeable sum of money aside for a rainy day. Build up this fund over time and you’ll be able to cope with any disasters that come your way!
Better still, it helps to take the pressure off. You don’t have to worry about worst-case scenarios anymore. Instead, you can breathe a sigh of relief and get on with your life.
Tactical Tips for Starting an Emergency Fund
Does that sound good? Would you like to learn how to do it? Check out these six tactical tips on how to start an emergency fund.
1. No Amount Is Too Small
The first step to starting an emergency fund is to realize that setting some money aside each week, month, or quarter is better than nothing.
Alas, many people take the view that trying to save is futile when you only have a few dollars to spare. It seems like a hopeless endeavor, so they postpone it to an unknown future date. The reality of the situation’s very different though.
There’s an old saying that goes something like: ‘look after the dimes and the dollars look after themselves’. Enter the saving process with that positive mindset and you’ll be amazed at how quickly your funds can grow over time.
Rome wasn’t built in a day, right? It may help to view each addition to your fund (no matter how small the sum might be) as laying a brick. Keep setting them down over time and you’ll end up with a mighty wall one day.
2. Open a Separate Savings Account
So, you’re committed to creating an emergency fund and determined to start saving ASAP. Now it’s time to open a brand new saving account for the task. Why?
Because you’ll be less tempted to dip into your rainy-day funds for no good reason!
It’s the same as someone on a diet deciding not to buy cookies from the store. Rather than trusting themselves to have enough willpower not to eat them, they put a system in place that removes the possibility. With no cookies in the cupboard, they’ve got no other choice but to reach for the carrot sticks instead.
Not all savings accounts are made equal though. The best ones offer a reasonable rate of interest and easy access to your money. Tick those boxes and your money will: a) increase in value over time, and b) be readily available in an emergency.
3. Set a Total Savings Target
The next step is to realize how much money you want to save. Ask around and you’ll find that everyone has different ideas on what constitutes an appropriate amount of cash for emergency funds.
There’s no right or wrong answer, yet more substantial funds do, of course, provide greater financial security. Whether you decide to save $500 or $50,000, it’s all about being true to yourself and picking a practical target that seems attainable.
Want our advice? Figure out how much you’d need to feel less worried about possible financial emergencies. Use that number as a baseline and plan from there.
4. Break Your Target Down
Deciding a total savings target’s all well and good. As we all know though, setting goals is very different from attaining them. That’s why I’d recommend breaking your overall target down into smaller, manageable chunks.
Here’s how to do it:
Consider your income, identify your essential expenses (things like your mortgage, food, and car payments), and then assess how much you can afford to save each month. From there, decide how much you’re willing to save. Strike a balance between those numbers and set that figure as your monthly savings goal.
Creating these bitesize targets should make your overall goal seem less daunting. With any luck, you should be less likely to give up along the way.
5. Automate the Process
Saving for an emergency demands sacrifice, commitment, and delayed gratification. In other words, it’s hard work! Want to make life a little easier?
Set up automatic transfers from your primary bank account into your emergency fund each month.
This simple strategy will both save time and facilitate the saving process. It means you no longer have to log into your online banking account to move money around.
Those automatic transfers mean you can set it, forget it, and then sit back while your emergency fund grows on autopilot.
6. Turbocharge Your Savings
Increasing the amount of money you have at your disposal is the best way to speed up the saving process.
There are two ways to do it: spend less or earn more.
The exciting news is that you can do both with relative ease. For example, you could reduce your monthly expenditure by canceling pointless subscriptions, downgrading your car, moving back in with roommates, or getting an older mobile phone.
To boost your income, why not get a second job, start a side hustle, sell unwanted possessions, or negotiate a raise at work? There are lots of ways to generate multiple flows of income and lift yourself into a better financial position.
You can then put your growing cash into your emergency fund each month.
Tried-and-True Tips for Starting an Emergency Fund
Setting money aside for a rainy day is the most sensible way to avoid the ramifications of unforeseen financial emergencies. Have you been thinking about starting an emergency fund for that reason?
Hopefully the steps highlighted have shed light on how to do it. Keep them in mind and you’ll be one step closer to your newfound financial security.
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