There will always be that period in our lives when something urgent will always come up in our lives and there might not be funds elsewhere to take care of it except the ones we’ve kept aside for such a rainy day in our lives.
Having an emergency fund is a step to setting up your financial goal. Because this is a fund you have successfully kept aside in case of an emergency. It is more like money kept aside that we can fall back to when we get to a point in our life when we don’t have any means to solve our financial problem or problems and this fund we have successfully kept aside, comes in to save the day.
When you fail to save a few dollars for a case of emergency, you will not only run into debts upon debts, you will also be financially depressed. Becoming too dependent on your paycheck. Investing, in this case, is not even an option for you since you are going through a financial crisis.
However, when you go into emergency funding, you become financially responsible. Starting up or determining to build up an emergency fund can be really rigorous, that is why this article has out up ways you can effectively build an emergency fund. Welcome to financial freedom!
Here are 10 Effective Ways to Build an Emergency Fund:
1. Set a Goal:
It has been proven so many times that having a goal; something you are looking forward to achieving within a particular period of time helps you to keep your head in the game, thereby setting up an emergency fund for it.
For instance, you have a business investment worth over $50,000 to make. This goal keeps you in check on how to spend your money because you have a target to achieve.
Here, you keep throwing in a few dollars maybe 10 to 15 percent of your paycheck into a different account that serves as your emergency fund account.
When you have such goals, and you are determined to achieve them, no matter the financial crisis, you will still want to achieve this goal and tick the box settled.
A goal is a target that keeps you focused on the things you really want to achieve. It is that inner power that propels you to go for something. Having this in your corner is a step to building an emergency fund. Learn how to set other smaller goals aside from the larger ones you set for yourself. This will help to keep your game going.
Checkout: How to Make a Personal Investment Plan
2. Automate your Savings:
How can you spend money when you haven’t seen it in the first place? You can actually set up a different account for your emergency fund. Set up a savings account that you can’t access easily, unlike a checking account.
Unlearn the habit of checking your account because it might make your savings look slower and smaller. Choose to forget about it and let time do its thing.
Luckily, some employers deposit money to different accounts of an employee. You can choose to allocate a specific amount from your paycheck to this savings account meant for your emergency funds. This tactic is a great way to get yourself into the habit of saving and over time, you get use to the automatically saved money as it becomes less and less noticeable.
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3. Save up Unexpected Money:
There will be one time or the other in our lives when we are lucky to have some unexpected money come in form of bonuses, gifts, or raise in our paycheck. Whatever it is; save up that money you are not expecting in your emergency fund account.
No matter the amount your receive, be it $2,000 dollars or $100, set it aside. After all, you weren’t expecting the money so it won’t affect your budget in any way. This may not be the easiest way or a great way in growing a fast account but its means a whole lot. After all, it is said that “a drop of water can make an ocean”.
Resist the urge to spend that extra money, especially on things that really do not count. Maybe going on a shopping spree, increasing your budget because of extra cash you were not counting on. Imagine saving up all the money, and forgetting about them only to realize how much you’ve made at the end of the day.
4. Slash your Budget:
There must be some things in our budget that we really do not need. These unnecessary budget items can be slashed down; free up this money and save it up in your emergency fund account.
For instance, an excessive budget to eat out most of the time could be cut down when you plan to eat most of the time at home.
Have a draft of your needs and wants. Separate them and choose your needs wisely so you could save up.
Checkout: 11 Effective Budgeting Tips for Low-income Families
5. Get a Side Hustle:
Having a different means of income aside from your regular job is one of the biggest steps towards building an emergency fund. This is because you have other means of income.
No matter how small these side hustles can be or are, it pays you something at the end of the day that does not interfere with your regular paycheck.
Consider side hustle like blogging, coding, programming, dog walking, home service company, or working for a delivery company and these jobs do not interfere with your main job.
It is more than a golden opportunity that helps you build up an emergency fund. In fact, you are sure to have your money grow in a surprising way especially if this side hustle pays pretty good money. It also helps you not to tamper with your regular paycheck.
Checkout: 12 Side Hustles you can do while working full-time
6. Set up Monthly Commitment:
Depending on the amount which your requirements exceed the funds you have, set up a monthly commitment towards your fund. Have that plan that says “this is what I want to do for this month”.
For instance, when you have a total fund requirement of $3,000 and you have an existing fixed deposit of $1,000, you could pull $1,000 from your existing savings and gather another $2,000.
Learn to put money aside for each month, then you can put away the remaining money into your emergency fund account. Until you meet your goal, you may have to be prudent and frugal in spending and trust the process that one day, this effort will surely pay off in the long term.
7. Optimize your Savings:
Actually, it can take a while to meet your emergency fund goals. For Instance, you’re transferring $150 a month into your emergency savings account but your goal is to save $10,000.
Looking at this goal, it will take you approximately four years which may seem very discouraging. Do not worry, “when there is a will, there is always a way”.
The first way to speed up the process is to look into your budget. Cut out any unreasonable budget. Another way is to save a part of dollars every time you purchase something enrolling in a service like Debit Card Round-up will help you round up your debit card purchase to the nearest dollar amount and transfer the difference to your primary share account once every day.
8. Allow your Money Multiply:
It is one thing to save up money another is making more money from saved up money. Make sure your saved up is working for you by putting it into a high-yield savings account, or money market account.
Every extra penny counts, so make sure you’re getting the maximum return for your investment. When you invest this money, have it at the back of your mind that its yield or the entire purpose of this investment is for your emergency funding, however, make sure to have access to the money by having a liquid account where you can access the money when you need it.
9. Have an Amount You Need to Save:
When you have an amount you are targeting, it keeps you focused on what you want in your emergency fund. To determine how to build emergency fund savings, you will need to calculate 3-6months of your important living expenses.
For instance, if your living expenses are calculated to be $20,000 by the number of months you need to save for, such as 3-6 months.
This means you will need to save $6,000- $12,000 in your emergency funds account. This is because these expenses somehow are a part of your emergency.
10. Clear your Debts:
By doing this you won’t have to use the money for emergencies in clearing up debts. Include debts as part of your budget. This way you don’t run into the temptation of using the money set aside for your emergency fund to clear debts.
If you really want to be progressive in building up your emergency fund, then learn to clear unpaid debts, and if you plan to go into it in the nearest future, endeavor to get include it as a part of your budget.
Consider your emergency fund like an insurance policy. It is not a piggy bank that you will be using if for incidental purposes. Make sure to match up that amount as your salary rises.
Money saved up in an emergency account should be used only in the case of an emergency just like the term depicts and spend carefully when the need arises because saving up for it again might not be so easy.
Start now and save whatever you can, even if it isn’t much. Building an emergency fund offers you a better shot at weathering a financial crisis without running up a credit card balance.
I’m a Technology Stock Analyst, with focus on companies developing cutting-edge techs. Keeping track of cutting-edge techs, companies and stocks is what I do almost everyday. And I love it. Whether it’s artificial intelligence, 5g, or autonomous vehicles; I’m all in.