Emergency funds can be your saving grace in times of trouble. Earlier this year, a lot of workers were pushed into a huge financial dilemma because of the government shutdown. They were suddenly left without an income and unable to pay their bills and other financial obligations.
If these people had an emergency fund, they would have been okay despite the problems they encountered with their source of income. Even if it was only a few thousand dollars, it would not have driven them in a state of a financial crisis.
But if they were like the majority of adults that did not even have $1,000 in their savings account, then they would have been in trouble. There is a high chance that they relied on their credit cards to pay for their basic necessities. Months after the government shutdown is over, they would still feel the effects because they have a lot of debts to pay off.
This is the reason why you need to make your emergency fund a priority right now. You do not want to be left unprepared in case something like that happens again.
You might be hesitant to start because you have a lot of debts to pay off. That is okay. It is possible to start saving for emergency funds despite your debt payments. All it takes is some careful budgeting tips to help you save while in the midst of a debt relief program.
Tips to save for an emergency fund while paying off debt
Admittedly, saving enough money for your emergency funds will be a challenge especially if you are also paying off your debts. However, it is not impossible to do so. It will be a stretch on your paycheck but it will be worth it.
Here are the tips that you can use to boost your emergency savings while you are in the middle of your debt payments.
Set a target amount
To start with, you need to set a target amount. This will help you focus and set the right goals. Since your budget will be limited, you need to plan where your money will go. Ideally, your emergency fund should be at least 6 months worth of your expenses. That means if you are spending $4,000 a month, you need to have at least $24,000 in your savings.
But since you are sharing your finances with your debt payments, you need to compromise. Having a $2,000 emergency fund should be fine for now. In case that is too hard to reach, you can aim for $1,000. If something happens, you can survive on that while you try to find other sources of income. It may not be enough, but it is better than nothing. Whenever you have some extra money that you can spare, add to your emergency fund.
Analyze your budget plan
After you have set a target emergency fund, you need to take a look at your budget. Without touching the debt payments, how much can you spare to save for emergency funds?
Obviously, this will be a challenge. However, it might be easier if you create a frugal budget plan. This is a type of budget that focuses only on what is necessary. It is like a bare-basic budget plan. If it is not necessary for you to survive, you should not spend on it. Instead, you will save it to be a part of your emergency funds. Do not worry because this is just temporary. As soon as you have saved enough for your emergency funds, you should be able to give yourself a little more freedom to spend. Of course, it should not be too much. You still have to conserve your finances to pay for your debts.
Get a debt relief program has a lower monthly payment
Once you have established how you will save up for emergency funds and pay off debt, it is time to consider using a debt relief program. To be specific, you want to use an option that will allow lower monthly payments. Not only that, you want to get a debt solution that will lower the interest on your balance. This will allow you to save money on the whole debt.
Since you are also saving for your emergency funds, you should prioritize a lower monthly payment. This will give you more room in your monthly budget to save for emergencies. It will also make you feel less restricted even as you try to stretch your paycheck to accommodate both savings and debt payments.
Cut back on expenses
Whenever there is a need to save money, a lot of people opt to cut spending. In fact, one survey revealed that the reason to spend less includes a new debt, the possibility of a recession, medical bills, and also a loss of income. Apart from the debt, the other reasons qualify as emergency expenses. These can really benefit from emergency funds. To give you more room in your budget you can also try to cut back on what you spend each month.
When you adopt a frugal mindset, you should be able to identify a lot of expenses that you can live without – like cooking meals at home or brown-bagging your lunch. These little savings can add up. Just remember to not be too quick to remove entertainment expenses completely. It is wise to spend a little on fun activities – as long as you do not go overboard. Also, think about cost-efficient things to do that you will enjoy. It will help keep you happy and motivated to do the two difficult financial tasks before you.
Increase your income
Finally, you can boost emergency funds by finding ways to increase your income. You can declutter your home and sell the things that you no longer need. The money you will raise can be used to There are so many options for you to earn more. You can go to your employer and ask for a raise. You will never know until you try. If that is not possible, ask them for extra shifts so you can increase your salary.
You should also try to explore other sources of income. There are several side gigs that you might be able to capitalize on. If you have a hobby or skill, maybe that can be used to your advantage. Bake cookies and other goodies to sell. Take photos on the side. Think out of the box and work hard. You should be able to reach your goals.
How emergency funds can support your debt relief program
While it is very difficult to be successful in saving emergency funds while paying off debt, it does have a couple more benefits to give you. To be specific, these benefits can be good for your current debt situation.
Keeps your debt payments secure
First of all, you can find financial security while paying off your debts. Your emergency fund will ensure that your debt payments will not be compromised or used for something else. In case something happens, you do not have to sacrifice your debt payments to accommodate the unexpected expense. It will ensure that you will never miss out or even be late for your monthly credit obligations. With uninterrupted monthly payments, you will get out of debt a lot faster.
Keeps you away from more debt
According to reports, those who do not have emergency funds tend to use their credit cards or borrow a personal loan to cover an unexpected expense. You can avoid this if you only have the savings to cover the unplanned expenses. When you build up this fund, you can use it instead. You do not have to rely on credit to get by. Even if something happens to your income, you have the funds to get by. It will allow you to focus on finding another source of income instead of worrying about where you will get the money to buy food for your family.