Steps to Preparing an Emergency Fund
With all the natural disasters that have happened or are about to happen this month, it makes you pose the question; am I prepared? Everyone needs to save for the unexpected; unfortunately, many individuals and families do not have any savings at all. When you have no savings than any emergency is going to put you in the hole. A financial buffer can help keep you afloat in a time of emergency and let you recover without going into debt. We can all make it there if we follow these simple steps and make a plan.
First, you need to consider this question. How big should my emergency fund be? There is no exact answer because it should be based on your situation. A good rule of thumb is to try to have enough to cover three to six months’ worth of living expenses. But any type of savings is better than nothing. The best thing to do is start small and build your way up. Now let’s go over some simple ways to get your emergency fund started.
- Keep Your Emergency Fund Separate
If you keep all your funds together you will set yourself up for failure. It is better to keep your emergency fund separate because as we all know out of sight out of mind. The best thing to do is start a savings account at your current bank, or if you are easily tempted start a separate account at another bank. Finally set up a regular time each week to deposit money into that account.
- Get Creative
Many American’s are living pay check to pay check which makes it hard to find spare cash to stash away so you need to get creative. The best places to look are your everyday expenses. This would be a great time to start a budget if you do not already have one. Once you take not of your spending areas decide where you can cut or reduce. Then take that amount and begin putting it back for your emergency fund.
- Stash Your Change
If you pay with cash and break a larger bill take those smaller bills and drop it in a jar at home. When the jar fills up, move it to your emergency fund.
- Set a Monthly Savings Goal
Getting in the habit of doing anything makes it easier. That is why setting a goal and sticking to it will make the task less daunting. Even if it is $10 a week every little bit counts, and before you know it that $10 adds up.
- Assess & Adjust
After a few months check in to see how much you are saving, and adjust it accordingly. This is especially important if you go through a major life event like marriage, having a baby, or moving to a new city.
Remember an emergency fund is for emergencies. An emergency is something that affects your health or your ability to earn an income. Things that are not emergencies include holidays, birthdays, or lavish purchases. The thing to do is draw a line between savings for emergencies and savings for anything else. Remember to set a realistic goal and start small, and remember even a little adds up over time.