One of the most critical components of creating a more secure financial future in both short and long term is an emergency fund. The beginning of the new year is a great time to tackle the first steps of establishing a savings plan or unexpected financial need. You can also do this anytime of the year as well!
Follow these steps to help build a necessary financial reserve when you need it for those unexpected occurrences.
1. Set a Fund Goal
Emergency funds are designed to help when the unexpected happens, such as a car repair, home damage, or unemployment. The savings acts as a buffer to help eliminate the need for credit cards or loans to cover immediate and un foreseen financial needs. An emergency fund should equal to about three to six months of living expenses.
2. Set Up a Monthly Goal for Your Emergency Fund
Set up your budget to find out how much money you will need to allocate monthly towards your emergency fund. You want to start with deciding on an actual amount and dedicate contribution frequency. You can even set up an automatic transfer with your bank to do this. No matter if it is a small amount, starting today can make a big impact on your savings and any future hindrances that come your way.
3. Open Up an Emergency Fund Account
Once an emergency fund has a place within your budget, it will be easier to put money away on the regular basis. Consider setting up automatic transfers as well from your checking account or arranging a percentage of your paycheck to be directly deposited into the savings account each pay period. Don’t forget to make your first deposit once you have opened up an account for your emergency fund, even if it’s very small.
4. Other Resolutions That Can Help You Build an Emergency Savings Account
One way to meet your emergency fund goal is to review your budget and eliminate unnecessary spending and then depositing the extra money leftover into your funding. Look into reducing your bills, such as cable or phone to see if you can save some extra money.
5. Find Other Budget Areas to Trim
Look at your spending categories, including dining out and routine coffee habits or other incidentals. If you can rim a few things out, then it can give a quick boost to your savings. Immediately transfer the money to your emergency fund so it doesn’t get spent elsewhere on small day-to-day purchases.
6. Put Unexpected Cash in Your Emergency Fund
This can be unexpected cash you get from a bonus, a tax refund, or small proceeds from selling something you own.
7. If You Withdraw from Your Emergency Fund
Come up with a plan to replace the money you take from your emergency funds. You can go over your budget against to see if you can find some extra funds to replace any money you used. Maybe you can pick up a short-term side job to help refill that fund too.
8. It’s Okay to Start Small
Several hundred dollars can make the difference between a car repair and a credit card bill. You can accumulate that just by saving a few dollars a day over the course of a few months.
Mostly importantly, just start saving!