Always it’s a good have the emergency fund as one of your highest savings priorities. With a simple calculation if you only add on $20 a week under the account of your emergency fund and your account will grow to over $1,000 in just one year.
That’s often enough to cover a repair your car of bay for an emergency medical bill or fix your car after a car accident. An emergency fund can seen as your cash insurance & will prevent you from the high cost of borrowing.
Follow these five steps to help you toward starting an emergency fund;
- Chart your monthly income and expenses
If you’ve got through any of our financial articles on this blog you will notice that planning and budgeting is always the first step toward reaching to your financial goals. Checking your monthly expenses & income while budgeting is the most important step. You can use excel worksheet or get a piece of paper or using any of the free applications and write down how much money comes in and everything you spend money on every month. Be sure to include recurring expenses such as your rent or mortgage, utility bills and childcare, and estimates of other out-of-pocket expenses for things you might buy such as movie tickets, dinner out and clothing.
2. Set your emergency savings goal
An emergency fund should cover three to six months’ worth of realistic living expenses. If you feel your income is stable or have access to home equity or other forms of credit to use if needed, then you may be able to plan for the lower figure. If your credit is near its limit and your income outlook is not secured, you need to save more money.
3. Develop a plan to start saving
Setting a goal and developing a plan to achieve those goals go hand-in-hand. Part of your plan may include specific and measurable targets to work toward. For example, one specific goal may be to save an extra $500 over the next six months to put into an emergency fund. This type of goal will be much easier if you divided on a much smaller goals for this example and once again as mentioned in this article if you only put a side $20 per week, you will be able to achieve the goal of having the $500 after six month easily!
4. Make contributions automatic
it’s important to pay into your emergency fund first “PAY YOUR SELF FIRST” . When you start an emergency fund, set aside a certain percentage of your take-home pay each month and put it straight into your account. You can set up either an automatic deposit on the same pay day or a separate direct deposit with your employer as part of the steps to start an emergency fund.
Once you’ve started an emergency fund, find other ways to build your account even faster.One of the ways which i have done during my timing working as a sales, i was putting a side any extra commission which i get each quarter directly to my emergency fund account!
5. Put your emergency fund in an accessible place.
Yes, i just mentioned you should have a dedicated account for your emergency fund, but same while you need to ensure that the type of this account is very accessible if needed for real emergency situation. The best place for your emergency fund is in a liquid account (accounts where your cash is easily accessible). A liquid account might be a regular savings account at a bank that provides some return on your deposit and from which your funds can be withdrawn at any time without penalty. Certificate of deposit, money market fund or mutual fund, despite of the high percentage of interest rate which is always good , they are not the best place for you to save your money for an emergency timing.
As a bonus Tip- Stick to your plan. Once you’ve created your plan, make sure you stick to it. This sometimes be the hardest part of saving for an emergency fund or any other financial goal in general we discussing in this blog. If your goals are realistic sticking to the plan will be much easier with a little motivation and reminding your self with your mean dream and goal of becoming financially free!
To help you along the way check out the 8 Easy to Follow Personal Finance Decisions That Can Make You Rich.