Starting an emergency fund can feel very overwhelming, especially if you live paycheck to paycheck or feel you don’t have enough income. Now more than ever, we are learning how important it is to have money set aside. We really never know what life is going to throw at us. Having money in reserve can relieve stress in times of crisis. Here are some tips and tricks to be successful in creating a strong emergency fund.
1. Set a goal
Take time to set a goal for your cash stash. This is going to look different for every person, depending on their financial situation. Take a look at your budget and establish an amount that is realistic for you to put aside each paycheck into your emergency fund. It can be a dollar amount or a percentage, but the important thing is to make sure that you are comfortable with the amount. If the amount is too large, you may find yourself taking money out of your emergency account in situations that are not true emergencies. Establish your goal and stick with it. Be patient and your fund will grow. Don’t rely on having huge amounts of extra money to build your savings all at once.
2. Create the account
Set up a specific account for your emergency savings. You want to be able to easily access your account when there is an emergency. Consider opening a second account or sub-savings at your primary financial institution so that when an emergency happens, you can smoothly move the funds into your primary checking account. Having your emergency cash structured this way will also make it easy to transfer funds to grow your savings each month. Another tip is to look into savings account options that pay more dividends. Ideally, your emergency fund is going to sit and grow, so why not earn as much interest as you can while it is growing. Be careful about putting these savings into certificates or fixed investments because even though they earn higher dividends, there may fees or an extra charge to withdraw the funds before the maturity date in the event you need immediate access.
3. Extra income
Earning extra income can help boost your rainy day fund. Whether it is an income tax return, extra hours working a summer job, birthday or holiday money, or a side hustle, any time you can use some or all of this income to add to your reservoir savings, you won’t feel the budget strain while you grow your savings.
4. Needs and wants
To reach any type of savings goals, it comes down to needs and wants. For some people it takes a lot of discipline to not be able to buy whatever you want whenever you want. For others, saving money comes naturally. Either way, giving yourself some spending rules can help keep you on track with your savings goals. One example could be waiting a designated number of days before making purchases above a certain dollar amount, such as waiting 10 days to buy anything over $100. If you decide against the purchase, the extra money that you would have spent can be added to your emergency fund. In the long run, you will be happy you have the money set aside when those unexpected emergencies happen.
You never know when something unexpected might happen, but having an emergency fund will give you peace of mind. Without funds saved, you may feel more panicked to get the money you need, have to borrow money or use a credit card, or might not be able to pay your monthly obligations. Emergencies are not fun, but there is a sense of control that having an emergency fund can give you in difficult times.