Do you have an emergency fund set up? Here are 5 ways to start an emergency fund today.
According to CNBC, 69 percent of Americans have less than $1,000 in total savings, and 34 percent had no savings at all. This means that far more than half of Americans couldn’t cover a $1,000 emergency.
An emergency fund is a safety net by providing you and your family financial security if an emergency ever arises that requires you to take time off work, or if you are presented with a costly bill.
An emergency fund is a separate bank account that you put money into but don’t take out of unless it’s an emergency. It is not an account that you take money out of because you just need that cute pair of shoes and payday is still a week away.
An emergency fund is that one thing that keeps you and your family from sinking into financial debt when your car needs unexpected and expensive maintenance, there is an emergency that requires you to take time off of work or other things like that.
WHY IS AN EMERGENCY FUND SO IMPORTANT?
Emergency funds are important because if one of those instances that I mentioned happened, over half of Americans would fall into a deep, deep pit of bills and debt.
I get it, emergencies happen to a lot of people, but they won’t happen to you and your family.
That’s the shocking mindset of many people out there. Sure, they happen, but not to me. Not to us.
I never thought that a big emergency would happen to us. Until it did, and thankfully my husband was able to take time off of work and we had money to fall back on to keep us afloat during that time.
Realizing that so many people either wouldn’t have the option to take time off of work to be with family in need or that if they did take time off of work they would fall deep into debt is what spurred me on to create this how to start an emergency fund post for you.
I know that nobody hopes or even expects that an emergency will happen to them or their family, but the reality is that an emergency can happen at any unexpected moment, and we should all be working on preparing ourselves and our finances.
Starting an emergency fund is not expecting that the worst case scenario will happen to you, it is preparing yourself so that if the worst case scenario does happen, you won’t sink into financial ruin.
Accidents and most emergencies are far out of our control, and often we have no impact on whether or not they happen, but the one thing we can control is whether or not we are prepared financially for an emergency.
Take a look at your finances and ask yourself this question –
If something happened today that required you to either take a week off of work OR you were presented with a $1,000 bill that had to be paid for in full, would you financially be able to do it?
If paying the bill or taking time off of work would send you into debt, it is time to start rethinking your finances.
Creating a budget is an important part of getting control of your finances, and so is starting an emergency fund.
Financial experts will tell you that your emergency fund should be at least 3-6 months wages, but since I know that can sound overwhelming when you’re just learning about emergency funds, start with a goal of at least $1,000 then work your way up from there.(THIS POST MAY CONTAIN AFFILIATE LINKS FOR YOUR CONVENIENCE. YOU CAN READ OUR DISCLOSURE POLICY HERE.)
5 WAYS TO START AN EMERGENCY FUND
1. FIGURE OUT HOW BIG YOUR FUND WILL BE
The first step is figuring out how much money you will want to put in your emergency fund. Some people prefer to get theirs to a sum that makes them feel comfortable and stop there, while others prefer to get it to the desired number and keep adding money every month.
Either option is fine, choose whichever one works best for your situation.
Your emergency fund goal should be a minimum of $1,000 and a maximum of whatever you want.
Experts suggest having your emergency fund the equivalent of 3-6 months of wages, but if that sounds overwhelming, you can start with a goal of $1,000 and work your way up from there.
2. CREATE AN ACCOUNT FOR THE MONEY
This money isn’t going to go into your regular chequing or savings accounts. Open a new savings account for your emergency fund, and don’t touch the money once it’s in there.
The account is always open for money to be added into it, but when you add money in, be sure that you leave enough out for you to live on because once it’s in there you shouldn’t touch it unless it truly is an emergency.
Creating a separate savings account for your emergency fund will encourage and help you as you build it bigger.
Being able to see this account that started at $0 climbing higher as you add money into it will be good encouragement to keep on going.
When you are choosing an account for your emergency fund try to find an account that has no monthly fees, and that you can be earning interest on.
3. BE CONSISTENT WITH THE ACCOUNT
Every month, or even every two weeks, be consistent with funding the account. Don’t let it sit without putting more money in it for months on end.
Be consistent from the start, put a percentage of each paycheck into your emergency savings account and keep on doing that for years to come, or until you have reached your maximum emergency savings goal.
4. CUT BACK ON YOUR SPENDING
Find ways to lower your grocery bill, phone bill, insurance, and others.
Cut back on your everyday spending, too. Decide not to go to the mall today and stay home and read a book instead.
Find some fun things that you can do that don’t require you to spend money, and set the money that you would have spent aside to start building your emergency fund.
5. FIND WAYS TO MAKE MORE MONEY
If you want to build your emergency fund big fast, then just putting money aside from each paycheck might not be enough for you.
There are many small side hustles that you can do to earn some extra money, then that money can be put aside into your emergency fund.
Here you can find 28 ways to make extra money every month aside from your full-time job.
What’s holding you back from creating an emergency fund? Adding another monthly expense to all your other expenses might sound overwhelming, but it will more than pay itself off in the long run if or when an emergency arises.
Do you already have an emergency fund? Have you ever had a situation where your emergency fund has bailed you out? I’d love to hear from you!