While managing finances is often a bit of a juggling act, one area of our finances that is just as important as the all the others, is of course saving money. One such type of savings comes in the form of an emergency fund. These funds can serve a variety of purposes, ultimately however, they come in extremely handy in the event you encounter unexpected expenses.
The reality is, that in our lifetime, there will be many expenses we just can not plan for and as a result, it makes sense to start putting away some essential emergency funds now.
Here are 2 of the best ways to develop an emergency fund.
1) Breaking Down Savings Goals into Small Steps
When researching successful emergency funds, you may have come across some advice that states that all emergency funds should be made up of at least 3 to 6 months of your total living expenses.
While this is definitely an ideal scenario, it might however just not be realistic for all savers. In fact, setting a lofty goal such as this one could deter individuals from saving altogether.
Therefore, it then makes sense to approach your emergency fund by breaking it down into smaller saving goals.
For example, in the beginning, it is ok to think small and gradually, yet steadily continue to build your savings. This is not to say that you shouldn’t set a goal of how much you want to save. Instead, however, consider setting a more realistic goal, such as saving $1500 in 1 year.
Depending on how much income you have coming in, this number could change, could get higher or lower – all in all, you do however, want to ensure the amount you are saving each month is a realistic one.
Once again, even if you are only putting $50 of your income away each month, this can total $600 in one year – an amount that can be used, if necessary, to cover the costs of a variety of unforeseen expenses.
In the end, it is important not to set your savings goal too high, yet instead to save in smaller, more manageable stages.
2) Automating Your Savings into a Separate Account & Reviewing Your Budget Regularly
Another beneficial method of developing an emergency fund is to start by setting up a separate savings account that will house these funds for safe keeping.
Once you have this account in place, it is also a good idea to have funds directly sent to the account each month.
By automating your payments, this will allow you to continue saving each month, without having to worry about missing or forgetting a payment. You also won’t risk spending this money as the same amount will be transferred to your savings account on the same day of each month.
This is a sure fire way to keep on track with your savings, and in turn watch while your emergency fund continues to grow.
In addition to setting up a separate savings account, you will also want to continue to monitor your budget on a regular basis. Not only will your budget allow you to see how much money you can realistically save each month, it will also help you to see where you could be overspending.
You can think of your budget as a break down of your entire spending plan, all the while continuing to track where each and every single dollar you spend is going.
That being said, if you find you are overspending in certain areas, such as grocery shopping or entertainment, try then to see if you can cut back on these expenses. As a result, you may even be able to increase the amount you are saving towards your emergency fund each month.
While growing an emergency fund isn’t always easy to do, it can be a very critical part of your overall financial success. In the event you do encounter an unexpectedly large expense, without these funds you could risk going into further debt. If you are already in the midst of a bad credit situation, this could be even more detrimental to your financial situation.
Even if you have some debts you are paying off each month, which you are likely to be doing, it is still very worthwhile to try and save some money each month – even if it is just a little at a time. Remember, it is ok to start out small as long as you do continue to save.
In the end, it is a very well worth your time to start building your emergency fund now. The truth is you never really know what life challenges will come your way – and having some funds set aside can certainly benefit you greatly in the long run.