Discover How Much Money Should You Really Save When Making an Emergency Fund!
Having an emergency fund ready is crucial when facing unexpected expenses, like car repairs, home renovations, medical expenses, or even natural disasters. Without a fund, you may find it difficult to cover those urgent payments and may have to rely on resources like credit cards or loans to get your finances back on track. Although those options help temporarily relieve a tough financial situation, it’s best to have a savings account with immediate access to cash without having to worry about interest rates and fees. You can simply use your own money to handle urgent expenses instead of taking on additional debt to get back on your feet.
If this is your first time building an emergency fund, though, you may wonder how much money you should save in your account. After all, you want to ensure you have enough cash to stay afloat during a tight spot but still have the necessary funds to pay your recurring expenses. In that instance, it is recommended that you follow the general approach of depositing three to six months’ worth of living costs to prepare yourself for an economic crisis. However, if you don’t have the means to make those installments, you should stick to an amount that works for your budget. Pick a money total you’re comfortable with and habitually add to your emergency fund once a month.
The truth of the matter is that the amount you’ll put into your savings account will depend on your income and financial position. Of course, other factors, like your spending, are completely under your control, so it’s pivotal that you prioritize your contingency fund instead of wasting money on unnecessary items. It may seem initially discouraging to start with small deposits, but you can see your account grow if you remain consistent. If you earn more cash down the line, you can expand your emergency fund even further by making larger deposits than the initial amount.
When starting this savings journey, it’s important to remember how the aforementioned factors can influence the total you’ll put into your emergency fund. Don’t get frustrated if you’re unable to save three to six months’ worth of expenses since it’s not an obligatory goal. Just ensure you work with what fits into your budget and steadily boost your savings over time.
Talk to a financial advisor today if you have any questions about how much you should really save when building an emergency fund.
What are the Steps in Building an Emergency Fund?
Calculating the amount you should put into your savings account is only the starting point in formulating a rainy day fund. After you find a money total that fits your personal circumstances, it’s time to follow the right methods to achieve this financial goal.
Here is a look at the steps you should abide by when building an emergency fund today:
- Open a Savings Account: This seems like a straightforward first step in building an emergency fund, but it’s essential to remind you about opening a savings account since having your contingency cash in your checking account can be problematic. You want to make sure your emergency fund is a separate account to avoid using it by accident on regular expenses. If you want to benefit greatly from saving money, you must choose an account with a good interest rate and low fees, like a high-yield savings account. Research for the best accounts available before sticking with the most immediate option you find.
- Implement Budgeting Strategies: Once you determine an amount you can start saving in your emergency fund, you must find a way to stay consistent with your savings goal. Remember, it’s important to concentrate on allocating money for your emergency fund instead of spending cash recklessly if you want enough funds for a financial predicament. Fortunately, there are several budgeting plans that can help you remain firm on that objective, such as the 50/30/20 Rule, the “Pay Yourself First” method, and the Envelope Budget System. If you want advice on which budget plans to use, you can talk to a financial expert online for suggestions on the best ways to save money on your emergency fund.
- Set Up Automatic Deposits: As an adult, you may have a lot of payments that require your attention, which is understandable if you forget to deposit money into your emergency fund at your established due date. That’s why it’s recommended to set up automatic transfers from your checking to your savings account to let your bank handle the workload for you. Or, you can speak with your employer’s payroll department to deposit a portion of your paycheck into your savings account if you prefer that alternative.
- Take Advantage of Financial Windfalls: Have you ever received a gift card from friends and family or gotten a Christmas bonus from your employer? If you have, using that extra cash for any personal items always seems reasonable. However, you should consider putting that money into your account to grow it even further when building an emergency fund. You may have an opportunity to get closer to your savings objective than you would spend that cash on other expenses.
- Increase Your Transfer Amount: Don’t be afraid to expand your deposit amount after frequently contributing money into your account for some time. It’s crucial to send cash with an amount you’re confident with, but it’ll be helpful to boost your deposits to get closer to your goals. However, that doesn’t mean you should make exaggerated transfers that exceed your budget. If you have sufficient funds to make a larger deposit, you should start with one percent more than the regular amount and moderately increase your savings in the long run.
- Continue Saving Money After Meeting Your Target: Building an emergency fund doesn’t end with the savings goal you set in mind. Many experts believe you must continue adding money to your savings account to prepare for unforeseen events. If you’re in a situation where you must use a huge chunk of your savings to cover expenses, you may still have enough funds left for another emergency if you replenish your account after meeting your objective. It’s better to be ready for different possible circumstances rather than regretting it when you don’t have the available cash.
Building an emergency fund can be easy when you follow the appropriate methods to save money in your account. If you face an unexpected bill while structuring your contingency fund, you can always apply for loans, like personal loans or an installment title loan, to manage your financial dilemma. Regardless of the challenges you face throughout your journey, it’s important to be disciplined to stay on track with your savings plan. There’s always an alternative solution available to keep you steady when prepping your emergency reserve.
Bottom Line ⎼ Establish an Emergency Fund Based on Your Finances
Get started on your emergency fund by determining how much you’re comfortable contributing to your savings account. Don’t forget how your savings total will depend on various factors, and you should stay within the limits of your budget. If possible, you should increase your monthly deposit amount to help you reach your financial goals quickly. However, it’s essential to keep refilling your emergency fund after reaching your financial aim to be prepared for any situation.