Life, as we all know, is unpredictable. Sometimes, through no fault of our own, we will have to deal with injuries, accidents, and unexpected bills. We never know what life is going to throw at us, so it is always best to be prepared.
What is an emergency fund and why is it important?
An emergency fund can help ensure that you will always be able to cover large, unexpected expenses, such as medical bills, major car fixings, and emergency house renovations.
An emergency fund will make sure that, no matter what, you will never get into financial difficulty. It will also allow your mind to rest easy knowing that you will always have a financial safety net. Studies have shown that over 70% of Americans are worried about money, so having an emergency fund will help you relax, knowing that you will never have to go into debt when financial issues arise.
Tips on building your emergency fund
Now you know the importance of having an emergency fund, here are some easy ways you can start building your own:
- Work out how much you need to save: it is suggested that you should save up to half a year of expenses in an emergency account. That way, if you get into financial difficulties (e.g. you lose your job), you will be able to afford the next 6 months of essential living costs.
- Open a savings account with a good interest rate: this is difficult nowadays, but make sure you shop around and pick a savings account with a good interest rate. Consider putting your money in a fixed account, as this will have a higher interest rate but you won’t be able to access it for a set amount of months or years.
- Set a monthly savings goal: this will get you into the habit of saving regularly. Why not set up a direct debit so you don’t even have to think about transferring the money?
- Save up your change: although a lot of things are done virtually now, a lot of purchases are still made with change. Every time you find some change in your pocket, place it in a jar. Over a few months, this money will start to stack up and you can deposit it into your savings account.
Ways to save for your emergency fund
- Stop spending on unnecessary items: when you are starting to save for an emergency fund, you have to be brutal with yourself. Try not to make any unnecessary purchases. The sooner you have enough money in your emergency fund, the better.
- Save money on your bills: one easy way to save money is to check your monthly bills and cut out the ones you are no longer such as gym memberships or entertainment memberships you aren’t making the most of. You can also save money on your Oncor energy bill by checking comparison sites to see if you could be saving money.
- Get a second job: if you are struggling to earn enough to put a lot in your savings, consider taking up a second job. Even if you work a second job for another month, it can make a huge difference.
- Make more budget cuts: there are many different ways you can cut down on your monthly spending.
- Turn the thermostat down by 2 degrees.
- Write a shopping list before you go shopping and stick to it!
- Stop buying takeout coffee and make your own.
- Put a limit on how much you eat out or order in.
An emergency fund is a necessity for you and your family. Make sure you make mall changes like these, as they can save you hundreds of dollars over a year. Make sure you put all of the money you are saving in an emergency funds account.