Tips On Creating An Emergency Fund
According to a 2013 survey conducted on more than 1,000 adult participants it was found that half of them have less than a three-month cushion in their savings. And 27% were living from paycheck to paycheck, with no bank account savings at all. That can make life very troublesome indeed when an unexpected financial crisis happens, such as losing your job or a medical emergency.
To make sure you sleep well at night with the knowledge that you can get through any financial emergency, you have to save. Most experts recommend an emergency fund that can cover 4 to 7 months’ of your living expenses. It’s actually possible, but it entails some discipline and a lot of effort on your part.
Here are some tips to keep in mind:
- Tally your monthly expenses. Categorize them into groups, such as the necessary purchases and the “luxury” items you enjoy but don’t really need. For example, rent (or mortgage payments), transportation, food, and insurance payments may be necessary. But buying designer clothes and going on holidays abroad are definitely luxuries.
There are several reasons why this step is absolutely necessary. First of all, it gives you a target amount to aim for, because you only need 4 to 7 months’ worth of savings for the necessary expenses. The other purchases are luxuries, and by identifying what they are, you can eliminate them completely.
- Your emergency fund should be available, but not too easily accessible. You shouldn’t use an ATM account for your emergency fund so as to avoid the temptation to use the fund for something that’s not actually an emergency. But you shouldn’t put your emergency fund in a time-deposit account or in stocks, which may take a while to liquidate.
- Set aside a fixed amount of your income to save. It may be best to treat it just like another necessary bill you have to pay. The amount depends on your income and your needs.
- Supplement your income by selling some of your possessions. Check around your home. Are there some items there that you can sell off because you don’t use them anymore? These items can be anything, from jewelry with no emotional connection to you, to used gaming consoles and toys you or your kids no longer play with. They can be books or tools you don’t pick up anymore, or may have already forgotten about.
You can hold a garage sale, or you can sell them online on eBay.
- Get a second job. It doesn’t have to be permanent. You can just hold on to that job long enough to get the emergency fund you need. Then you can quit that job knowing that you’re ready for any emergency.
- Cut down on the little things. Perhaps you can drink soda less or avoid buying expensive wine. You can stop drinking overpriced coffee. Use coupons when making purchases. You may want to avoid dining at expensive restaurants every week too. By doing these things, you can already save a lot of money in just a year’s time.
Your luxuries should be avoided while you’re trying to save for your emergency fund. Keep in mind, an emergency fund is a necessity, while your extravagant dinners are not.
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