You reserve funds undoubtedly play a crucial role in your life. If you take a look at how Hurricane Harvey devastated much of Houston in a matter of hours, your emergency money would be a big help. According to the Governor of Texas, Greg Abbott, the estimated damage from Hurricane Harvey is at $150 billion to $180 billion. This estimate is a lot higher than the damages during Hurricanes Sandy and Katrina. With Hurricane Irma at tow, who knows how much this hurricane season will really cost everyone. Even if the government will help rebuild what was destroyed, you still need to spend money to get through the devastation caused by this force of nature.
It would take more than money to rebuild but it is a great start. It is better to have some backup funds you can use to normalize your life than having to start from scratch.
In all these, the most important thing is still to come safe and sound from any catastrophe. It is not easy to have to go through that amount of rainfall that threatens your very life. Not only that, it is also tough to see everything you worked hard for like your house, car and other personal belongings go under water. It could take away your drive to go on and sink you into depression.
During these trying times, you need to hold on to hope and know that tomorrow will be better. As you do this, it would be a big boost to have the financial confidence in knowing you have some reserve funds to rely on.
How emergency funds can secure your finances
How exactly does it give you the ability to get back up on your feet as you try and maneuver your way out of emergencies? Here are a few benefits of having emergency money on hand.
You stay up to date with your financial obligations
One of the most challenging parts of going through an emergency is it disrupts your financial routine. Especially so if it has a direct impact on your earning ability. More than natural disasters, you might also lose your job unexpectedly or take a trip to the ER. All of these can ruin your finances significantly and without reserve funds, you might be forced to dip your hand into the budget intended for other payments. That means you might be tempted to skip paying for this month’s mortgage or credit card debt. Either one of those will end up tainting your credit report. When that happens, your credit score will be in danger of going down. That can compromise the financial opportunities that you can enjoy. But if you had emergency funds, you do not have to jeopardize the money that is used on your usual bills.
You get to provide for your basic needs
Statistics reveal that 1 out of 4 Americans goes through a change of income over the course of 2 years. The thing is, it is not guaranteed that the change will go up. There will be times when the change would mean having a lower cash flow coming in each month. If this is the case, your finances might be in trouble. If you are not prepared for these instances, you might not have enough money to pay for the basic needs. Having adequate reserve funds would mean you have enough money to at least pay for the most basic of your needs. It will keep you sane as you try to get out of your difficult financial situation.
You avoid borrowing money or charging expenses on your card
This is probably one of the best reasons to have a reserve fund is to keep yourself from debt. When you lack the emergency fund and you are in dire need of money to pay for your basic needs, you will be forced to use your credit card or borrow money to pay for it. This can land you in a lot of credit card debts. If your finances are not strong enough, you might not recover from the debt – and that can be disastrous for your financial future.
How to get on track with your reserve funds
Now that you have an idea how reserve funds can keep you in the red, how about learning how to give it a boost? The more you have in this fund, the more you can make ends meet when you encounter a financial problem – which is something that not all Americans have. According to statistics, those who had financial shocks in 2015 admitted that they had difficulty in meeting all their obligations. If you want to stay away from this statistic, you should give your emergency fund a boost.
Generally, what you want to happen is to reorganize your budget so you end up having extra money at the end of the month. Any extra that you get can be used to make your emergency fund bigger. Here are some tips that will help you accomplish this.
Take a look at your monthly expenses
Start by studying your monthly expenses. You want to know where your money is going. Listing every expense, no matter how small, will help you be thorough in determining where your money is being spent. Once you have the list, you can identify if there are money leaks in any one of them. Feel free to rank your expenses from the most important to the least. This will make it easier for you to identify the expenses that are not really important to you.
Look for ways to free up unnecessary expenses
After you have scrutinized your list, you should check the unnecessary expenses and get rid of them. You can choose to keep a few – but only the important ones. If there are seemingly unnecessary expenses that can really make a difference in giving your mood a boost, then it might be worth the expense. You do not have to get rid of every expense because that can make you feel miserable. Just be honest in choosing what expenses to keep but be firm about spending less than what you used to.
Commit to start saving
Once you have identified the unnecessary expenses that you should stop spending, you have to make a commitment to stop spending on it. This will help you increase your savings and in effect your emergency funds. If the amount you can add to your savings is small, it does not matter. If you are consistently saving, that can eventually grow. It will soon be enough to make your finances secure. The important thing is to commit to it and save consistently.
Allocate windfall money over to your reserve funds
Finally, if you have any windfall money, commit to putting it towards your reserve funds. This refers to any amount that you get unexpectedly. It can be a bonus, a commission or a monetary gift that you received. Regardless if it is a small amount, everything must go to your savings. If it is a big amount, you can opt to keep a small percentage that will allow you to buy yourself a reward. You can cut yourself some slack by celebrating. Just make sure that you will not spend everything.