After 2020 Emergency Fund Pro tips
- Author: Michael Bordonada
- Posted: 2024-06-20
The 2020 pandemic affected many people countrywide. People were affected in almost all aspects of their lives. One area that everyone admits to having been hit is the financial aspect. The pandemic made people aware of the fact that most are unprepared financially for an emergency.
It is crucial to have an emergency fund, but some people don't know how to go about it. An emergency fund is different from a regular savings account, and it is essential to understand how to build one. There are a few things you must keep in mind when creating an emergency fund.
1. Start Small
According to financial experts, an emergency fund should cover at least six months to twelve months of your daily expenses. It seems impossible and intimidating having to save that much money while having to meet your monthly expenses. If you haven't tried having an emergency fund before, it may appear more difficult and stressful, but it doesn't have to be that way.
You can start small, set an attainable objective in a given period, and aim to achieve that. When you successfully meet your weekly or monthly target, you can raise the amount you need to save. You can start by saving $400 monthly and then $800 to $1200 whenever you are comfortable. Creating and saving for the emergency fund will feel more manageable and comfortable.
2. Find the Best Place for Your Money
If it is your first time building up an emergency fund, you should know that saving always depends on your situation. For your first time, find a high-interest savings account and move up from there. You can target higher rates with high liquidity vehicles and low risks.
It is essential to choose a bank that best meets your needs. Look for a bank with features like low early withdrawal penalties, spending and saving accounts, early pay check access, and debit card options. Always have separate accounts for your regular savings and emergency funds. It helps reduce temptations of early withdrawal from the emergency fund.
3. Automate your Deposits
A rule that you should always remember while creating an emergency fund is always to pay yourself first. In a tight economy, the dollar sure does disappear fast. To avoid not saving due to many expenses, you can have your bank cut a percentage off your monthly payments. The bank can directly deposit money into your emergency fund account.
You can also speak to your employer to have a percentage cut off your pay check to make things easier. Most people go wrong by handling the money themselves and not depositing the money; instead, they spend it on seemingly more pressing matters.
4. Cut Back on Monthly Expenses
To save comfortably, cut back on your monthly expenses. You can make a list of your monthly payments and make small cutbacks. However, going cold-turkey is cautioned against as it may backfire. Start with non-essential spending and luxurious preferences by minimizing the frequency of some activities. For example, try going out twice a month instead of every weekend.
Try and prioritize your spending by having your expenses to cover your daily needs. Make sure you have everything you need for a comfortable month ahead instead of buying things on impulse. You will save faster and more comfortably when you trim your monthly expenses.
5. Save Unexpected Money
Sometimes you may come into unexpected money from tax refunds, work bonuses, inheritance, even maybe winning the lottery. Save some of that windfall into your emergency fund. When you receive a pay rise, you can always prioritize saving it rather than spending it.
Getting unexpected money can be overwhelming. Use that money to achieve your saving objective, and reduce the pressure of meeting your target. As you celebrate, remember to secure your financial future with less stress.
6. Save and Pay Off Debt
Most people put off saving when they are in debt. It would help if you did not wait to finish paying off your debt to start saving. Doing this makes you lose precious time to save. You can always work out a plan to help you save as you pay off your debts.
There are many avenues to save your emergency fund. You should find the most suitable plan to keep your future secured as you continue to deal with your present demands. It is good to seek advice from a financial expert to help you manage your money appropriately.
With the recent pandemic, it is wise to have an emergency fund to avoid future panic over unpreparedness. An emergency fund helps put your mind at ease in the face of a crisis.
