A car crash, unforeseen medical costs, broken roofs, and income loss are all examples of unforeseen financial crises. No matter how big or small, these unanticipated bills always seem to arrive during the worst possible time.
But we can go further and ask you to imagine if your sump pump failed! Your place would be flooded, and the cost burdens would be unimaginable.
Setting up a designated 6-month emergency fund could be one of the most important things you can do to protect yourself. Plus, it’s also a great way to get into the habit of saving. You’ll be able to rebound and get back on course with your broader savings objectives if you set aside money.
Here’s the how and why of creating a 6-month emergency fund.
Why Do You Need An Emergency Fund?
We can all hope for the best and think we can live paycheck to paycheck. However, when you least expect it, issues can arise that need financial attention.
With no savings, even a modest financial setback might put you in a terrible scenario that might take a long time to rectify. And, if you turn to borrowing and get into debt, the long-term consequences could be a hard struggle.
The simple solution is to be prepared and don’t get caught off guard. Plus, emergency savings can relieve any current anxiety issues you have now.
How Much Emergency Funding Do You Need?
You can determine the money you require in your emergency savings account by your circumstances. Everyone is different. For instance, earlier, we mentioned about a sump breaking down. If you rely on a sump pump and it fails, you need to think of the costs involved with sump pump repair.
Also, consider the most typical types of unplanned costs you’ve encountered before and the costs they set you back. This may assist you in determining how much you will put into your saving money.
Saving money might be challenging if you live just within your means. Or could it be that you have an unpredictable income? Nevertheless, even a tiny sum might bring financial stability.
How to Grow Your Emergency Savings
There are a variety of ways to get started with your savings which we’ll run through. You can use these plans in various scenarios, such as if you have a restricted ability to put away money or your salary fluctuates.
One of the easiest ways to start is to put away all or a part of your tax refund. But, managing your cash flow is fundamental in all the strategies you might consider.
So let’s take a look at some strategies and approaches to save:
Develop Good Saving Habits
Once you can steadily set aside money, it’s easy to develop a savings account of any amount. It’s an efficient method to watch it expand. There are a few fundamental aspects to developing and maintaining good savings habits if you aren’t already doing so.
First, you should set a goal. A small emergency fund is a perfect opportunity to set your first savings goal. You could even set targets within your final goal to motivate you more.
Also, when you set a goal, it’s a good idea to specify a realistic timeframe and amounts you can put away.
Another great way to get saving is to think about how you will make contributions on a consistent basis. One excellent way to do this is to set up automatic transfers. You can set up a same-day transaction that sends money to your savings account when you get paid from your job.
It’s also essential to monitor your progress through the weeks and months. It may be that you struggle too much with everyday costs and need to cut back the amount you contribute to savings. Or, the opposite could be true, and you can afford to save more.
Furthermore, celebrate your saving achievements. Once you reach a saving milestone, maybe give yourself a well-earned reward!
Cash Flow Management
The timeframe of when money comes in and goes is your cash flow. Learning to time your cash flow well is super important in day-to-day living but also for saving.
Many of us don’t seem to get our cash flow in order and have times when we run low money at the end of the month. When you allow this to happen, there’s less chance of you saving anything!
The answer is to develop more discipline with your spending habits. Also, plan how much you need to spend in a realistic manner each week and stick to it.
Utilize Opportunities To Save
Like we mentioned earlier, if you have a tax refund, use it as an opportunity to stash some cash away. You don’t have to save it all, but you don’t have to splash out on a wild spending spree either.
There could be other periods throughout the year where you receive extra cash too. Whenever they occur, maybe commit to saving a percentage of this additional income.
Where To Put Emergency Fund
There are so many options these days where you can keep money safe for an emergency. The traditional way is a standard saving account with your bank or credit union.
Other people opt to keep money in cash, or they may buy some gold and keep that safe for a rainy day. Then there are online investment accounts, but these could be a little risky.
Start Your 6-Month Emergency Fund
Starting a 6-month emergency fund will give you the peace of mind you deserve. When you have money locked away for emergencies, you can feel less anxious, stressed and enjoy life more.
So what are you waiting for? Start your saving journey today! And while you’re at it, please feel free to check out our blog for more handy and practical tips.