How to Build an Emergency Fund
Life is nothing if not unpredictable. It is prudent to have emergency funds available quickly if needed during a crisis. While it makes sense logically, people may not know how to go about building their emergency fund. Having a plan will make the process far easier. Here are five tips.
- Don’t Set Unreachable Goals
Those who are unable to put aside one to three months’ worth of income immediately shouldn’t be discouraged. It’s ok to start small. Starting with a week’s worth of wages might be an easier goal to reach at first. The goal can always be increased, but the most important thing is to simply start.
- Contribute Small Amounts Consistently
Putting money aside should not be burdensome. Consistency is more important than huge amounts at one time. Even committing to regularly saving $10 or $20 can add up quickly and help build a strong emergency fund.
One way to ensure money goes where it’s needed is having automatic deposits. Once an amount is set, it’s simple to start an automatic deposit into the emergency fund. This is a convenient way to reach whatever savings goal each individual has. It also eliminates any temptation to spend the money before it’s saved.
- Don’t Spend More Or Get More Credit
Having an emergency fund is great for financial stability, but it won’t do much without balance and discretion. If the savings amount is too low, redirect more funds toward the emergency fund instead of impulse buys. If the amount is too high, don’t fill in gaps with credit card debt.
- Diversify Savings Methods
The emergency fund has one purpose: easily available cash for emergencies. It’s important to include other savings options in financial plans. It is a sensible idea to contribute at least a portion of savings to accounts that give good returns on investments. Personal retirement funds are a great option to consider, as they have a much higher yield than regular savings accounts. Solid financial plans and forethought will allow financial security through all phases of life whether that be having funds on hand for emergencies, having a nest egg for retirement, or anything in between.