Let’s face it. Life is full of obstacles, emergencies and trying times that require money. If your furnace blows or you lose your job, do you have cash tucked away to help you through? If the answer is no, this article is for you. That’s because, today, we are talking emergency funds.
What Is An Emergency Fund?
It’s exactly what it sounds like. It’s a cash reserve that you set aside for unplanned expenses and emergencies. This might include something minor like a trip to the doctor, a blown tire or an unexpected school expense. It might be for something major like making up for lost income or a catastrophic health diagnosis.
Why Do I Need It?
Even a minor financial shock can set you back and cause debt to accumulate. Debt has a lasting effect and sometimes negative impact on a family or individual’s finances.
How Much Should I Save?
If you’re living paycheck to paycheck or have an erratic pay schedule, setting aside even a few dollars can be challenging. That’s why it’s best to start with your own savings goal. A good aim for that initial goal is $1,000. However, most experts agree that you should ultimately aim for three to six months of expenses. Even if your initial goal is just a couple hundred dollars, having something to fall back on will be helpful.
How Do I Build My Emergency Fund?
There are a few approaches you might take:
- Save those windfalls. Tax refunds and overtime income make great seed money for an emergency fund.
- Pay yourself first. Figure out how much you can feasibly save each paycheck and transfer that amount from your checking to savings before you do anything else. Setting up an automatic transfer to take place on payday is a great way to make sure you are saving toward your goal.
- Take on a side hustle. Cut grass in your neighborhood this summer or deliver pizzas on the weekend, there are a number of ways to pick up a few extra bucks a month.
- Set aside extras. If the electric bill is lower than you anticipated, save the money – even if it’s just a few bucks!
- Sell something. A yard sale is a great way to make some money while clearing out clutter. Have an extra car that you don’t need? The proceeds could go a long way toward preparing you for an emergency.
It may take you a while but having some extra money in the bank will help you avoid debt and give you peace of mind. Even if your goals start small, having that savings when you need it will make a difference!
Need more inspiration? We have written about looking for ways to cut costs. Click below to read more on how you can trim expenses to save more money!