Your Guide to Building an Emergency Savings Fund
May 19, 2020
You’ve probably heard plenty of advice telling you about the importance of having an emergency fund. For good reason too! Unexpected events such as job loss, illness, or major home or auto repairs can happen to anyone at any time, but do you actually have an emergency fund to help when disaster strikes? If not, how do you create one?
Track Your Spending
“The first step to getting your finances in order is to know where your money is going. While it may sound obvious at first, you might be surprised to learn how much money you’re spending on miscellaneous items, such as fast food or coffee for example,” Jeff Mohlman, debt elimination strategist, points out.
Write down all of your regular monthly bills, such as mortgage or rent, car loans, utilities, phone, cable, etc
Next, figure out how much you’re spending on out of pocket items, such as gas, groceries, entertainment, personal items, and fast food including those quick coffee stops. If tracking for the entire month is too overwhelming, try tracking your miscellaneous spending for one or two weeks instead and average it.
Once you’re able to see how much you’re spending, it’s much easier to see where you can cut back on your spending and start putting that money into savings.
Set an Emergency Savings Fund Goal
The next step is determining how much you want to save. This figure is totally up to you and can be any amount you want as it’s your own personal goal. It could be a thousand, a few months of living expenses, or even an entire year of wages.
Ask yourself how much you would like to have tucked away in order to feel financially secure, and work towards achieving that goal.
Develop a Plan
Find expenses to cut back on or even eliminate. Get creative when coming up with ideas:
- Sell things you no longer need
- Cut the cable cord
- Skip the daily coffee run
- Bring your lunch to work
- Work on quitting smoking
- Save your tax refund
Find a Separate Place to Keep Your Money
The purpose of an emergency fund is to have access to your money immediately should an unforeseen event happen, so you want to make sure that your money is easily accessible, but not so accessible that you’re tempted to dip into your fund for non-emergencies.
Consider keeping your emergency fund in a high yield savings account or a money market account where you’ll have quick and easy access should you need it. If possible, consider keeping your emergency fund at a bank separate from your main account.
Stick to Your Plan
Knowing when to tap into your emergency savings fund will greatly depend on how successful you are at achieving your goal. While it may be tempting to see the balance in your account and want to splurge on something fun or extravagant, it’s important to keep in mind why you wanted to start an emergency fund in the first place. Be strong and avoid those impulsive purchases that will set you back. If you do need to dip into your savings, make sure to replenish it as soon as possible.
Finally, if you are disciplined and motivated to save money you can start to build up an emergency fund in no time at all, and remember every little bit adds up. Having an emergency savings fund can do wonders for your peace of mind by knowing that you’re prepared for whatever curve ball life throws at you next. Contact us today for more tips and saving strategies designed to help you build a successful financial future for you and your family.