It’s important to have some money set aside in case of an emergency. Emergencies are bound to happen; a car accident, unexpected hospital visit, a home repair, and more. If one of these unplanned expenses hits at the wrong time, you could be stuck in an awful situation. An emergency fund is the best way to prevent financial trouble from happening. Continue reading to learn how to build your emergency fund.
What is an emergency fund?
An emergency fund is a savings fund that you intentionally set aside for financial emergencies or unplanned expenses. It can be used for large or small unplanned bills that are not a part of your typical monthly expenses.
How much do I need?
The amount needed in an emergency fund varies from person to person. Consider the unexpected costs you have had in the past and how much they set you back. This can help you think of a savings goal. Another way to estimate how much you need is by multiplying your monthly expenses by 3. This would be 3 months' worth of expenses that you could pay for if you experience a loss of income. While 3 months is a good place to start, aim to reach 6 months' worth of expenses.
How do I start saving?
There are several ways to start saving to build your emergency fund:
- Set small goals
Instead of aiming for the largest goal, it’s easier to obtain by breaking it down into smaller goals. Once you reach the first small goal, it’ll give you the motivation to keep going. Eventually, the saving will become a habit and you will reach your overall goal in no time.
- Make regular contributions
Make your initial contribution level small to make sure you won’t be stressing about your cash flow at first. If you get too overwhelmed with your contribution amount, you will be more likely to quit saving. Look at your unnecessary spending to see if there are a few things you could go without to put money towards your emergency fund. Whether it’s $10 or $100, saving some amount of money at regular intervals is key to making saving a habit.
- Automate your savings
One of the easiest ways to continuously save is by making it automatic. Set up a savings account specifically for your emergency fund. Then set up an automatic transfer for each savings interval of the regular contribution you want to make. With it being automated, you won’t have to think about it and it will become a regular occurrence in your cash flow.
- Save unexpected income
One of the best ways to build your emergency fund is by setting aside any random influxes of income you receive. Whether it is a large tax refund or a bonus from your job, this can substantially build your emergency fund.
If you need help budgeting and building your emergency fund, contact us at Lifebridge Financial Group. We will be able to assist you in improving your financial well-being. Give us a call today to get started.