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Life is unpredictable. One moment, you might be partying and living your life to the fullest. The next, you might end up suffering from a severe stomach flu.
Fortunately, it’s not that serious. But imagine if it were.
Resilience and grit are the best ways to deal with life’s uncertainty. But let’s be honest: Having a good financial safety net supersedes those. In unplanned emergencies, it pays to be financially wise. So, here are some ways to start an emergency fund.
What Is an Emergency Fund?
An emergency fund is your financial backup during dire times. It’s an amount (ideally, one that covers three to six months of your expenses) you have set aside for emergencies, including medical emergencies, broken appliances, home repairs, and even job loss. With how shaky the economy can be and how unfair life is, your emergency fund ensures your finances stay stable.
Emergency Fund vs. Savings
“But I already have savings. I don’t need an emergency fund.”
I know! Financial independence does need A LOT of segregation, but separating one from another equips you with a robust financial well-being—one never goes wrong with being an intentioned saver.
This said, an emergency fund should be separated from your usual savings because the former is for unexpected expenses, while the latter is for your goals. Knowing and honoring this difference will help you better manage your finances. You don’t want to miss that trip to France because your phone broke.
How to Start an Emergency Fund from Scratch
Saving money sounds so easy. You simply have to set aside a portion of your income and wish you’d forget about it, as well as every other craving you have. This isn’t meant to guilt you into not spending for yourself. Instead, it should only remind you to be more financially conscious.
To get yourself started, Wilbert Guilford, CFP, offers professional insights and tips through his book, Financial Planning for the 99%. It’s a comprehensive guide for financial education that anyone—the 99%—can relate to. This includes strategies, information on retirement, life insurance, debt, credit stores, and more. Written by a seasoned financial planner, tips here are guaranteed to succeed!
After getting inspired, it’s time to get down to the nitty-gritty. Here are some excellent tactics to build an emergency fund quickly.
Figure Out How Much You Need
Before you learn how to start an emergency fund, knowing your budget is essential. Yes, savings also need budgeting. You can’t allocate a portion of your income without examining if the remaining will still be enough for your necessities and some leisure.
Your emergency fund is meant to protect you from unexpected expenses, not become a source.
3-6-9 Rule
A popular rule when planning an emergency fund is the 3-6-9 Rule. This means that your funds should be enough to cover expenses for three, six, or nine months. But you don’t have to save this amount all in one go—you can start small.
Save Your First $1,000
The best way to start anything is to start small and work your way up. After familiarizing your budget, set your first amount to save. Put away smaller bills every week or month to reach that target. If you wish and believe it’s sustainable, you can cut back on your usual budget to reach your goal.
But remember, don’t pressure yourself. Pressure rarely gets things done.
Find Where to Save Your Money
This is the important yet tricky part. You can’t just learn how to start an emergency fund without knowing where to park your emergency fund. Hiding them in a bag out of sight might work, but is it practical? Sure, it gets you away from the temptation, but it doesn’t really offer more.
High-yield savings accounts (HYSAs) are the perfect place to park your money. HYSAs offer significantly higher rates than traditional savings accounts, which means your money grows with the account.
How to Start Regularly Saving—Especially on a Tight Budget
Now that we’ve gotten the technical out and the first amount has been saved, how do you ensure you’re constantly saving? One way to effectively save is to do it habitually, which means contributing to the fund regularly. This can be every two weeks or every month, the choice is yours.
Automatic Transfers
With the technology now, you can set up an automatic transfer from your account to your savings. You can schedule this every payday or whenever you want to. This way, you won’t really feel any hesitation or make impulsive changes in your decisions. Putting it straight into your savings through automatic transfers sure feels forced, but hey, at least it’s helpful.
On a Tight Budget?
There are moments when you have to cover more expenses than before, which puts you on a tightrope. There’s no shame in this, but you can definitely work around the issue.
Read more budgeting strategies here to help you save extra money.
Keep the Change
This is a common tactic savers use to slowly but surely build an emergency fund. Sure, it’s not the answer to the question, “How to build an emergency fund fast?” but slow and steady still wins the race. Do this when you get spare change after buying things. Drop them into a jar, and when it fills up, take it to the bank to deposit. It would take a bit longer to get things done, but it does also offer some fun.
When to Spend and When Not
What qualifies as an emergency can vary from person to person. Hence, it’s essential to set guidelines and strict rules on what emergencies should be. This is essential, especially when your money has already grown, to avoid the temptation to dip into the account.
So, when will you use your funds?
Learn from the Emergency
We’re getting practical here, but in this “How to start an emergency fund” course, we don’t only cover the starting point. Instead, we also discuss the aftermath. How do you maintain your funds and recover from a withdrawal? First things first, you need to learn from your mistakes. This way, you lessen the opportunity to experience it again.
Save Today to Secure Your Tomorrow!
Life can be challenging, but with some extra funds, you can easily get through it. It can be tough to try and save, especially when you feel you’re only earning from one paycheck to another. Remember, you don’t have to go big. You can always save at your own pace, but save something regardless.
If you feel ready to make your savings account, grab a copy of Wilbert Guilford’s book Financial Planning for the 99%. See how easy it can be to save for your future!
