Creating an emergency fund, if you have not already begun, is one of the best things to do for your personal finances. Most people do not know how to set up an emergency fund. I am going to walk you through this practical financial decision.
It’s a piece of common financial advice, in reality, but the uncommon part about it is how this is done,. but what’s not so common is how to actually do it.
Why It’s So Important?
I do not like using the word “important” most times, because often times it makes things too critical than they seem. Though in this situation, we are talking about your money, an emergency fund is definitely important.
If you are having financial burdens, the best decisions to take right now are:
1) Cut down on your spending
2) Stop borrowing
3) Set emergency fund of 20% of your income saved monthly. It saves your budget. If unexpected situations occur, you do not have to rewrite your old budget to pay for these things. With an emergency fund, it makes budgeting much easier.
Let’s look at the master plan for making an emergency fund.
If your problem is having to save, it is not only OK to let you know how critical it is to have an emergency fund. You need some master plan for doing it.
Please note that you should choose the strategies that work best for you, and perhaps combine some of them if that works better.
1 Start small
It is not required to have a lot before you start saving. Even if it’s only a small percentage of your salary, just start. You will be happy to see, a little increase in your savings, and will soon be motivated to try to save more.
2 Quit owing
When an unexpected situation comes your way if you lack an emergency fund, one of the things to avoid is getting more debt. When you end up using your credit card to pay for an emergency, you are piling up more debt. An emergency fund prevents having to borrow to pay for unforeseen expenses. Avoid short-term loans like payday loans.
3 Avoid late penalties
If you are living from hand to mouth, you will end up with occasions, overdraw your bank account-Overdraft. With an emergency plan, avoid these financial stress.
4 Automatic deduction
I have already spoken about this before-Learn The Truth About Best Way To Save Money In The Next 60 Seconds. This is everyday advice, but that’s because it works. Set up a savings account and have it automatically take an amount every time you receive your salary. It is easier to save, as you don’t have to think about doing it.
5 Make it look like an expense
Every end of the month, before you can start spending on your expenses. Add your emergency money saved to your list of expenses, and payout at the same time.
6 Reduce most expense, save it
Have a look at how you are spending now, look out for some things that can be reduced to the minimum. Anything you decide to save on, re-channel the same amount into savings.
7 On don’t forget to tip yourself
Say you tip a waiter $5, tip yourself $5 as well, when you go to the restaurant. Put that amount in savings.
8 Stop smoking or drinking.
You will not believe how much you can save by quitting any of these addictions. Some spend more than $5 a day on smoking.
9 Restrict your access.
If the temptation of spending your savings is very high, you must put it somewhere that is hard to use it. A treasury bill will do.
10 Save your bonuses and other gifts
If you get a bonus on Christmas or any other luck, deposit them directly in your savings account. Let it be part of your emergency fund.
11 Do away with your car.
If you have more than a car, after assessing if you can do with only one, do away with the others. Save the money on the second or other cars and save it.
12 Reduct your dessert intake
If you are battling weight reduction, avoid ordering the dessert. Rather, set that money aside for your emergency fund.
13 Stay in
In place of eating out or going to the movies, cook your own meals- or do something fun without spending.
14 Get a second job
Market your skills, or get a second job on the side. Save the extra income and deposit it in your savings account. This is one of the most important plans, and it works great.