Five Ways to Start an Emergency Fund
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As we know all too well given recent events, the future is extremely uncertain. And while establishing an emergency fund for an uncertain future is generally regarded as something all of us should do, very few actually do.
Sure, there are several reasons as to why most of us do not start an emergency fund, however, doing so may be easier than you think. With this in mind, here are five tips to help you establish an emergency fund!
How Much Should be in My Emergency Fund?
- Financial experts generally recommend having an emergency fund that is the financial equivalent of six to 12 months living expenses.
- Keep in mind, this is not the financial equivalent of your paycheck for six to 12 months, but rather just living expenses – food, shelter, utilities, etc. (i.e., the basics of life).
What Factors Determine How Much I Should Save?
- In determining how many months of living expenses you should have in your emergency fund, two extremely important factors are the line of work you are in as well as accompanying industry volatility. Indeed, based upon your skill set you should have a good idea about how dispensable your job is going to be during tough economic times, or even a pandemic. The more dispensable your job, the more you should prepare.
- Another major factor in determining the amount of funds to have in an emergency fund, is the dollar amount of your current debt. For instance, if you have a high amount of debt, step one to building an emergency fund is to reduce the amount of this debt. Simply stated, you cannot save if you have an exorbitant amount of debt. The less debt you have, the easier it will be to save for and build an emergency fund.
Don’t Try to Save Everything at Once
- It is important to understand that having an emergency fund equivalent to six to 12 month’s living expenses does not happen overnight.
- Start small with a specific goal. Based upon the aforementioned factors, it must be measurable and achievable. For some individuals this may be $100, while for others it could be $500. Whatever the amount, be sure it is something you can achieve within 60 days.
- Once this first goal – whatever it may be – is achieved, quickly add to it! So, $100 may become a new goal of $250 or $500 may become $750, and so on.
Pay Yourself First!
- Be sure to set aside emergency funds at the time you receive your paycheck. Don’t wait to do this at the end of the paycheck period, as this never works.
Other Ways to Build an Emergency Fund
- Consider purchasing “generic” products as opposed to “name brand.” This allows you to get the same quality at less of a price.
- Perhaps buy used as opposed to new – vehicle, home office equipment, some types of furniture, etc.
- Become a do-it-yourselfer! House cleaning, yard work, washing the car, painting your home, and other types of home improvement are all perfect examples of how you can save money. And, let’s face it, no one ever does as good a job on what you own as you do!
In addition, please know Safe 1 is always here to assist you during your financial journey. Should you have any questions, comments, or seek additional information, please do not hesitate to contact us here at Safe 1.