The act of balancing personal finance is a tough job but it is made a lot easier when reserve funds come into the conversation. In the middle of all financial challenges such as unpaid bills, increasing credit card interest payment, student loan bills and even getting laid off – having reserves in emergency can be a lifesaver for a lot of people.
It is close to impossible to try and predict what will happen in the future and when it comes to finances, the effort is better spent preparing for those uncertain times. It is okay to worry because it is a human trait that most people feel but it should not end there. It is an emotion that warrants a response and how people react to it can spell the difference between successfully managing their finances as against drowning in debt. This hits closer to home when you realize that according to a Bankrate.com survey, 29% of consumers said they do not have any reserve funds to speak of.
No one can predict when they will lose their job or when they will get sick to the point that they will need extensive hospital care. There is no way of knowing as well when that dryer will conk out or when the radiator hose for the car will need a replacement. Worry is a good thing but is should lead to a positive action which is strengthening the reserve funds. Not having enough reserve funds is actually one reason for financial stress for most people.
The reserve funds consists mainly of two things – the emergency fund and the rainy day fund. There is a distinction between the two to differentiate when to use them but they both help consumers deal with unexpected financial situations. The emergency fund should take care of the big needs like a job loss and the rainy day fund attends to the smaller emergencies such as minor home repairs and even home appliances breaking down.
Where can you get money for reserve funds
There is a process to compute for how much you actually need to have in you reserves but as soon as you hit that number, the next thing you need to do is find a way to raise the amount. You do not have to put a stop into all your financial obligations. Building up your reserve funds would take time and here are a few sources you can tap into.
- Tax refund checks. This usually comes around during the first quarter of the year and people normally would not have an idea how much they are getting, if they are entitled to a refund. But CNN.com shares that the average refund check would be around $2,893. This is a big amount and could really help boost your efforts in strengthening your reserve funds. As big as this might be, you need to remember that there is no assurance you will get a refund check. The best thing to do is to proceed as if you are not getting any from your tax refund and treat the amount as a bonus.
- Frugal outlook. One of the best ways to be able to put in more into your reserve funds is to take on a frugal outlook in life. This approach helps you save a few more from your income and allows you to put that savings into your reserve funds. If you start learning to plan and cook your meals rather than eating out almost everyday, you get to save some money from expensive restaurant bills each month. When you are able to bike to and from your work rather than bringing the car everyday, you get to save on gas and get an exercise out it as well. Living below your means frees up some funds that you can put into you reserve funds.
- Looking for a side hustle. A lot of people are starting to appreciate the added value of having a side hustle that complements their existing regular income. There are varing degrees to taking up a side income and it can be as demanding and rewarding as a second job or just putting in a few hours a day for a blog or hobby. The idea is to make use of talents , sklls, hobby or just extra time in a day to earn a little extra on the side. More often than not, people choose to take up a a side hustle that is in line with their hobby so they get to do something they love and earn off of it at the same time.
- Ask for an increase at work. There are some consumers that knows exactly their value in the office space and with careful research asks for an increase in their pay from their boss. OF course this is not something you can do on a monthly basis because no company in their right mind would increase an employee’s salary every single month. But you should think about asking your company for an increase or at the very least, work hard to meet all the criteria for a salary increase from your performance appraisal.
- Lower expenses at home. You can also watch your expenses at home to help you bump up your reserve funds for future use. It can be as simple as monitoring your electricity or even water usage so you get to save at the end of the month. You can also review and cut out some subscriptions that you are no longer using. Maybe opt out of that magazine subscription and read everything online or check your cable at home if you can catch your shows online. You might even want to look at the power consumption of some household equipments and see if there are other alternatives that uses lower electricity.
- Hold off on some purchases. You might be thinking of getting a new car or buying a more expensive laptop you can use at home. If you are in the midst of trying to increase your reserve funds, you might want to put in more thought about these big purchases and see if you can hold off on them and use the money instead to increase your reserves. It does not have to be the whole amount but the idea is to put in any extra funds you have to make sure that you are consistently increasing your emergency money.
Balance is crucial
When you are on a mission of setting up a relevant amount for your reserve funds, you need to understand that balance is a key factor in succeeding in your endeavour. One thing you need is to determine how much you need so you can start working your way towards that goal. But at the same time, you need to keep track of the money you are putting into the account.
Putting too much of your available money in your reserve funds could make you lose out on potential investment earnings. Putting in too little could put you at risk with potential financial emergencies along the way. This is why balance is critical where you put in just enough to keep you protected but not too much that you are losing out on potential returns on investment.