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An emergency fund is an important investment. Having one allows you to set aside cash for unexpected situations. An injury at work, a death in the family, or getting laid off are just some of the situations you may need to prepare for financially. Without an emergency fund, an unexpected scenario can damage your financial future.
It’s good to be optimistic, but life is full of uncertainties. It matters a lot to know how to keep yourself afloat regardless of the challenges that lie ahead. Here’s how you can get started building an emergency fund for yourself.
Here are some tips on managing your finances that will help you to prepare for such expenses.
Know how much to set aside
There is no standard as to how much cash you should put in an emergency fund, but it would be wise to follow the three-month principle. You should be able to save enough cash to cover your salary for at least three months. The amount will vary depending on whether you are employed with full benefits.
In case you are working part-time or as a freelancer, your emergency fund should be good enough to cover rent, utilities, food, and other household expenses for three months. In any case, you need to commit to a budget that reserves a certain amount for unexpected expenses.
Make lifestyle adjustments
How much do you spend on leisure and luxuries? Considering how volatile the economy is at the moment, you might want to spend more on priorities first and cut back on extra expenses.
At this point, you will need to assess your current financial situation and see if there’s anything you need to write off. Are there streaming or subscription services you don’t need anymore? How much do you pay for food deliveries each month?
You don’t have to sacrifice simple pleasures, but you will have to realize that you can save enough for your emergency fund if you make minor adjustments to your lifestyle. Start listing down all your monthly expenses, and determine the things you can live without or downgrade. Eventually, you will be able to save enough for building an emergency fund.
Save your tax benefits and financial support checks
What do you do if you get a tax refund for this year? Will you splurge it on a new car or will you save it as part of your emergency fund? There is no harm in treating yourself, but if you want to lessen the impact of a sudden injury on your future, saving your refund would be the most practical decision to make.
This also goes for the government assistance you have received since the pandemic started. If you are living in British Columbia, you are entitled to a tax-free recovery benefit. If you are eligible for this one-time financial support, you use the amount you receive to write off your debt and grow your emergency stash.An emergency fund is an important investment. Having one allows you to set aside cash for unexpected situations. An injury at work, a death in the family, or getting laid off are just some of the situations you may need to prepare for financially.Click To Tweet
Gather spare change
Spare change may not be much, but making a habit out of setting coins aside can significantly boost your reserve funds.
Consider getting a jar or piggy bank. When you return home from work, empty your pockets of loose change and drop them in the container. Do this every day until the container fills up. You can then transfer the amount to your bank account. You will be surprised by the cash you can save just by collecting spare change.
Use budgeting apps
Building an emergency fund is easier said than done. At some point, you will forget about setting aside some money for the fund. It’s difficult to commit to a savings strategy unless you monitor your money in real-time.
If you are having difficulty tracking every cent that comes out of your pocket, consider using a personal finance app such as Monefy or Expense Manager. You can use this app to calculate how much you will need to set aside for an emergency fund. You can also gamify your finances. There are apps like Long Game that help you set up financial goals and earn some cash for every milestone you accomplish along the way.
Still, if you want to be stricter in building your emergency savings, you can use apps that automatically deposit a certain amount from your main bank account to an emergency fund account. Apps like Keep the Change and Chime work great if you can’t count on yourself to save cash.
Set up a dedicated savings account
Your emergency fund is off-limits unless you really need it. This is why you will need to set the fund apart from the money you use for daily expenses. Creating a dedicated savings account for emergency purposes would do the trick. You just need to find a bank that doesn’t require hefty fees.
You might want to compare the basic savings accounts that each bank offers. Regardless of your choice, you will have to make the fund inaccessible so you won’t be tempted to make unnecessary withdrawals. For this, opt out of a debit card. If you are to make a transaction involving your emergency fund, you will have to do it over the counter. It’s far from being convenient, but it keeps your spending impulses under control.
You can’t be too sure about the future, so it’s important to prepare for any eventuality. By adopting healthy money habits today, you prevent yourself from going underwater when disease, injury, or economic downturn happens.