This post was most recently updated on October 28th, 2022
[A collaboration post – all thoughts are my own.]
Hi friends, how many times have you heard, “Start an emergency fund”? And have you started your emergency fund yet?
First things first. What do you mean by an emergency fund?
You know, there are many unexpected or emergency expenses that a person may need to deal with. They could be tiny or big, short-term, or have an impact on you over a longer period of time. It can be that your car needs expensive repairs, that you need to replace a home appliance, or that you have unexpected medical costs.
Cutting back or avoiding spending on this kind of stuff is not an option. In these situations, saving some money is really beneficial. If you don’t have any funds, taking out credit could seem like your only alternative, but this could ultimately hurt your financial situation.
I’m in my mid-20s and never had a credit card. I have learned that I can’t be trusted with a credit card, so it’s a debit card for me instead. Since I’ve been working for most of my twenties, I’ve avoided any desire to indulge in impulsive purchases when times are tough financially. And not having “free” money also motivates me to save for my goals and consider whether I actually need that expensive buy.
Save money for an emergency fund
It’s okay to take your time saving your money, but if you don’t start, you’ll never grow. Consider starting a side business if you are having trouble (as many people do) collecting funds for this purpose. If you are proficient in two (or more) languages, you can start offering translation services or find work as an interpreter or subtitler.
A weekend job walking dogs may be available to you. Or do you enjoy making pottery? Consider trying to sell your items on Etsy. You can try anything, and one significant advantage of a side hustle is that you can earn some extra money to put into your emergency fund.
Don’t give up before you even begin, though! Savings is mainly a psychological game that you can win. Even if you’re starting from scratch, consistently setting aside money, even in small amounts, will help you achieve your goal. It only requires some patience and time.
Here are five ideas to help you start building your emergency fund if you’re ready to do so, especially if you don’t think you can.
Regularly review your spending
Create a strategy to help you get there based on your monthly budget and goals. To make sure you’re contributing enough money each month to your emergency fund, what expenses do you need to cut down on or how can you change how you spend your money? Take a look at the simple changes you can make each day to improve your savings and budget.
Can you shop somewhere more moderately priced, use coupons more frequently, or pick no-name brands? Don’t forget to increase your income to stretch your budget. Find what works best for you among the many options there are to make simple adjustments every day and create many sources of income!
Set several smaller savings goals
Building an emergency fund can seem impossible and intimidating if you have a tight budget, so why even try?
Create a plan that allows you to save without compromising your needs. It does not matter if you can only save $25 every payday. You’ll have $50 at the end of the month, which you never thought was possible. As you see fit, gradually up your monthly contributions.
Whether it is $5 or $50, make a commitment to save a certain amount on a regular basis, such as once a month, once a week, or once a paycheck. The important thing is that it must become a habit rather than a recurring struggle.
You may find the motivation to move forward after reaching your main goal. The second and third goals should be even higher than the first. By that time, the saving will have become a habit, and the satisfaction you get from achieving smaller goals will encourage you to work toward more challenging ones. By doing this, you can minimize your cash flow and make it simple for you to rationalize stopping your savings routine.
Automate your savings
The simplest way to save money is to never touch it in the first place. Out of sight, out of mind. Most employers offer direct deposit, and some even offer deposits to multiple accounts.
Create a separate account dedicated to your emergency fund and set it for automatic deposits of your selected contribution amount from your company or bank.
Instead of using a checking account, use a savings or other account that is harder for you to access. You probably won’t miss it. Also, avoid constantly checking your account balance because this will just make growth look slower and smaller. Put it out of your mind and let life happen!
Don’t increase monthly spending
Don’t allow spending to recur once saving has become routine by falling victim to a false sense of security. For instance, you wouldn’t be saving anything, if you quit buying a new pair of shoes every month just to replace it a few months later with a new monthly shopping routine!
If you still have $50 extra each month after expenses, your savings deposit may be too small. If you don’t have an extra $50, your credit card balance can be growing. Both are pointless. While you are saving for an emergency fund, you shouldn’t stop living your life, but you also shouldn’t forget how important it is.
Your financial stability depends on having an appropriate emergency fund. Be realistic, yet work to save as much money as you can in the shortest amount of time. Even just that might improve the quality of life.
Don’t put too much money into your emergency fund. An emergency fund is by definition a source of quick cash. That means that you are probably keeping money in a low-yield investment like a savings account that earns an extremely low rate of interest.
You should stop making deposits to the account once you’ve accomplished your main goal just for that reason. Start making deposits into an account where they will begin to generate income on their own; ideally, this would be your retirement account, where time will allow them to produce the maximum fruit.
Open a separate bank account
You could open a basic bank account, which lacks current account extras like an overdraft capacity and other amenities. They provide you with a “secure” place to put your savings, though. Additionally, you’ll have access to online banking, receive a contactless debit card, and be given the choice of setting up direct debits.
So, those are some ways to save emergency funds that I start doing this year. How about you? Is there another way to save money for an emergency fund? Let me know below.