Wondering why you need an emergency fund? Take the proper financial steps with your money decisions and learn how to start an emergency fund here.
Do you have an emergency fund? If not, have you ever thought about creating one? There’s a reason why thousands of people around the world have an emergency fund saved up for a point in time that they never hope happens.
Emergency funds are great for those unexpected expenses that can really leave you high and dry. But for some people, they don’t have any type of cushion to fall back on when those expenses come about.
In this post, you’ll read all about why you need an emergency fund and the best way to create one fast.
Why You Need An Emergency Fund (And How To Start One)
Do you really need an emergency fund?
The short answer? Yes. An emergency fund is there to help you get through a period of your life that is a little bit rocky and unstable. Most people tend to think of an emergency fund as a waste but when the time come, you’ll be so happy to know that you have it in the bank.
How much do I need in an emergency fund?
This will vary depending on your situation but a good rule of thumb is to have your emergency fund have at least 3-6 months worth of savings in it. By doing this, it will allow you to have a few months of bills covered so that you can be looking for other ways to accrue cash.
What would you use an emergency fund for?
Like the name states, for emergencies. But not all emergencies are created equal. If you lose employment, this is what your emergency fund is for. Or if you have a medical emergency happen where you need to pay bills – this would be another great reason to use the emergency fund that you’ve been saving.
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How much should I put in my emergency fund per month?
This also depends on how much you’re able to save. The main thing to remember when creating your emergency fund is that it shouldn’t make you feel strapped for cash in your current situation.
You need to work on building up your emergency fund so that you can have a larger amount to fall back on but this will take time. If you want to dedicate 10-20% per month to add to your emergency fund, this is a good place to start.
You can always increase it over time if you’re able to.
Why shouldn’t you keep your emergency fund money in your checking account?
You should not keep your emergency fund money in your checking out. This is because you’re going to be tempted to spend it if you keep it with your current money. Instead of keeping the funds in your checking account, you need to keep it in a place that you can’t easily access. This means that you’ll be way less likely to dip into it and more likely to continue to save as the months pass by.
Why do I need an emergency fund, and how do I create one?
Now that you know the importance of having an emergency fund, let’s dive into some simple ways that you can start to create one.
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How do you build an emergency fund?
This isn’t just a one-size-fits-all approach. As a matter of fact, there can be several ways that you can create an emergency fund that works well for you and your household. You can also put your emergency fund in a savings account and earn a little bit of interest from the bank.
1. Round up all your purchases and save the excess
One simple way to start increasing your emergency fund is to round up your purchases to the nearest dollar amount and have that deposited into your savings. Little by little it will add up and you’ll be surprised how quickly it does. Your banking app might be able to automate that process for you.
2. Commit yourself to save a small amount at a time
Rather than try to figure a percentage of your earnings, you can set a certain dollar amount as well. Saving $10 a week is easy enough to remember. Within a year, you’ll have $520. Another strategy is to save $100 per month, that’s another a simple way to know that in a year’s time, you’re going to have $1200 in your emergency fund that you can tap into at any point in time. This is then easy to calculate how much you’ll have after 2 years, 4 years, 10 years, and more. Your banking app might able to automate this process as well.
3. Earn Extra Cash
Speaking of extra cash, if you have time you can take on tasks or other part-time jobs to put more money in your emergency fund. With the help of technology, you can do jobs locally or virtually. You can advertise on your social media or your local apps.
4. Sell Things You Don’t Use Anymore
You can also sell a few items you don’t use anymore to make a little extra cash for your emergency fund. Think about clothes you don’t wear, furniture you don’t use, or any other knick knack or tool that’s collecting dust. There are lots of apps and sites to sell your items on such as Facebook marketplace, Offerup, Letgo, etc. A bunch of small items sold or one large expensive item sold would be a great kickstart to your emergency fund.
5. Save Bonus Money
Any time you come into extra money, you can deposit that in your emergency fund. Bonus money can come from unexpected things like gifts or bonuses from your job. You weren’t expecting it anyway so might as well sock it away for a rainy day.
As you can see, setting up an emergency fund is a great way to be prepared for your future. If you save a little now, you’ll be saving yourself from some major headaches down the road!
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