An emergency fund plays an important role in your financial life. If you want security, stability, and success, you need to have enough amount saved in this fund. It helps you get through some of the most unexpected and difficult times in your life. Having a reserve fund gives you a certain level of financial confidence as you battle through situations that will catch you off guard and impact your finances.
It is important to take note that saving money is the one area where a lot of people struggle with. NY Post shares that about 51% of people over 30 years old are not saving enough. This should be an area of concern because emergencies can strike at any time. The economy might be doing good at present but you will never know when another recession might hit the country. And even if the economy holds steady, your personal life can suddenly go down the drain. One layoff or unexpected illness can quickly compromise your financial position.
Will an emergency fund help?
Having an emergency fund can certainly help get you out of a tight spot. Let us assume that you or a loved one suddenly gets sick. This is something that you should act on immediately. A trip to the Emergency Room might just be what you need to save a life. If you do not have the money to pay for it, what will you do? Your option would be to borrow money to pay for it. Or you might just decide to skip the trip to the doctor. According to reports, 2 out of 10 workers admitted that they will avoid high medical debts by not going to the doctor.
But what if the person who needs a doctor is your child? You will do everything you can to make sure they will get better. That means getting yourself in debt. Of course, borrowing money will not guarantee that your child will get better. And if the doctor prescribes expensive medicines, where will you get the money to pay for that? Not only will you be stressing over the illness, but you will also be filled with worry over the fact that you do not have the money to pay for the medical expenses.
This is only one of the many scenarios that can happen if you do not have an emergency fund. Imagine how different it will be if you have enough savings? You can confidently bring your child to the ER if needed. If your car breaks down, you can immediately have it fixed. Instead of stressing out because you do not know where to get the money, you can focus on solving your emergency in a more efficient and effective manner.
Tips to succeed at saving up for an emergency fund
If you do not have an emergency fund yet, you need to start working on it now. It does not matter if you can only afford to put aside $100 a week or less. As long as you start immediately and you are consistent with your contributions, you should be okay. When the unexpected happens, you will be happy that you have something reserved for it – even if it is only less than $500.
Of course, putting together and saving for your reserve fund requires effort, discipline, and self-control. That being said, there are a few tips you can use to get you started and saving like a pro.
Have a doable budget and stick to it
If you want to be effective in saving for your emergency fund, your starting point will always be your household budget. This is one of the primary tools that will allow you to get an overview of your current financial position. Your budget plan will tell you how much money comes in and where you are spending it on. If you need to save more to build your emergency fund faster, you can use this budget plan to identify the areas that you can cut back on so you can divert the funds to your savings.
To effectively manage your house payments with your budget, it is important to ensure that it is realistic and doable. This is an important step because you do not want to compromise your entire budget just to save for an emergency fund. Find the balance so you can save for an emergency and at the same time, meet all your other financial obligations.
Be vigilant with your expenses
To maximize the savings that you can contribute towards your emergency fund, you need to lower your spending. This does not mean you should starve yourself or limit your fun. You just have to be smart with how you use your money. You do not have to feel guilty about spending it if it can help improve your well-being.
Of course, if you want to save for an emergency fund, you have to be more vigilant with your expenses. Regardless of how small it may be, unnecessary spending can compromise your saving plan and make you miss your target. This is why it is important to guard your expenses so you do not waste money which could otherwise be used to strengthen your reserve funds.
There are times when it is not really the big expenses that you need to look out for. It is mostly the smaller ones that you need to be cautious of.
Know when to use it your emergency fund
Finally, you should also determine the rules that will tell you how to use your emergency fund. You may be able to save up enough but if you do not set these rules, you might use the money on non-emergencies. When the time comes that you need it for an important unexpected expense, you no longer have the funds to pay for it.
You need these rules so you can make the right money decisions that can strengthen your financial security. It is very easy to abuse this fund but you have to discipline yourself to not give in. This should be kept intact so you can use it when you need it the most.
How to save for your reserve fund?
Admittedly, there will be a lot of temptations that will make saving for an emergency fund very challenging. According to reports, 7 out of 10 do not have enough emergency funds to last them for 6 months. This is evidence that this is not an easy task to accomplish. While this is very difficult, you need to overcome the temptation if you want to achieve financial security.
Here are some tips that will help make it easier to save for an emergency fund.
Automatic transfer from your account
Automate your emergency fund savings so you will never forget to contribute to it. Sometimes, if you save it immediately you will not feel like it is there. If you are not aware that it is there, it will not be in danger of being spent on something else. You can be assured that this fund will steadily grow over time.
Do not make it too convenient to get the money
The reason why some people fail to save up for an emergency fund is that they are tempted to spend it. An effective way to deal with this temptation is to make it hard to get the money. Do not leave the emergency fund lying around the house where it can easily be accessed. You might want to put it in the bank instead. And if you will open an account specifically for your emergency fund, choose one that does not have an ATM card. That way, you will be required to go to the bank to get the money. If it is not really important, you will be discouraged from getting the cash.
Put extra money into your emergency fund
Finally, you should also discipline yourself to put any extra money towards your emergency fund. Unless you have enough in this fund, you might want to delay some of your other financial goals. That way, you can focus all your extra money on this saving goal.
You should also commit to saving any windfall money that you have. This includes any bonus, commission or monetary gifts that you will receive. That way, your emergency fund can grow faster.