Life is a series of unpredictable events. No matter how much we try to handle it, emergencies can and will happen. In many cases, these situations require us to spend a lot of money before it can resolve. For those who don’t have an emergency fund, this can mean accruing debt on high-interest credit cards.
The ideal way to get around this is to be prepared for situations ahead of time. To do this, you’ll need to build up an emergency fund. For many of us, that prospect is far easier said than done. Read this entirely; we look at five steps you can take to bring this goal to fruition.
5 Steps Towards Building an Emergency Fund
Whether it’s unexpected car repairs or a hospital bill, emergencies happen, and it’s impossible to predict them. In the spirit of being prepared, here are five steps for making your emergency fund more than just a dream.
1. Set an Emergency Savings Goal
First thing’s first: you need to set a goal for your emergency fund. There are different recommendations on what you should shoot for, but it’s best to start small. For example, if you were to put aside $10 a week, you would have $500 saved up by the end of the year.
In many cases, experts recommend that your emergency fund contains at least three to six months of realistic living expenses. If you have credit to spare, you can shoot for a lower savings goal, but if your credit is at its limit or have been looking for credit repair options at DebtSteps, you should aim for a higher goal.
2. Make Sure Your Funds are Accessible (But Still Out of Reach)
There’s a careful balance between these two things. On the other hand, you should be able to get your money if there is indeed an emergency, but on the contrary, if it’s too easy to obtain, you might use it for something else.
Here are some tips for finding this important balance:
- Keep the money in a savings account (without a debit card attached to it)
- Open a bank account with a different bank or credit union, than the one you usually use
- Have your spouse or significant other (or even a family member) be the one with sole access to the account, so you must go through them to access the funds
The temptation is the enemy of any good emergency fund, so these tips should help you find the balance you need between accessibility and distancing yourself from everything.
3. Cut Out Unneeded Expenses
We all have them, whether we like to admit it or not. Subscriptions, frivolous purchases, these kinds of things can add up. Instead of paying for things like cable, switch to a streaming service like Netflix.
Try to cut down on you streaming services as well. You probably don’t need Netflix, Hulu, and Amazon Prime for example. While it’s nice to have a fancy smartphone, you can also save a lot of money by switching to a pre-paid plan.
Look at your expenses each month and decide what you need, and what can go. With the money you save, you can contribute more to your emergency fund.
4. Develop a Plan For Each Month
Having a budget for each month is an excellent way to keep your finances in perspective. I like to use a spreadsheet through Google Docs, but you can do it however you like. The key is to be aware of where you stand and make a plan around it.
In the case of your emergency fund, just treat it like it’s any other bill you have to pay. Work it into your budget the same way you would pay a water or electric bill. Put that money aside at the same time you pay your other bills, and it will come as second nature to you.
5. Sell Things You Don’t Need
Many people have things sitting around that are taking up space, but they don’t ever do anything about them. I guarantee you have items like collectibles, old clothes, or trinkets that you haven’t touched in years.
In today’s online world, there are tons of different ways to sell items like these. Whether it’s on eBay, through a niche shopping site, CraigsList, or even just a local shop that buys those types of items, you can make some significant money and clean out your old stuff at the same time. Turn all of that around, and you have a nest egg for your emergency fund.
Everyone needs an emergency fund at some point in their lives. Starting now, you can get it off the ground, and when life strikes, you’ll prepare. It doesn’t matter if you’re a student trying to save money, or the head of a household, you’re going to need this at some point.
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Mike Lambert has worked in the financial industry for over a decade in a variety of roles. Now he works as an online freelance writer, helping others best prepare for the financial hurdles in their lives.