Building an emergency fund can be difficult if you are constantly juggling your bills, but peace of mind is just as important. That’s why you need to know how to build an emergency fund now.
Not tomorrow, not next week. Today.
You may not have been to save any money yet since the pressure to manage regular expenses has been stressful and anxiety-inducing for so many of us recently. According to a recent survey only 41% of Americans have enough savings to cover a $1,000 emergency.
Many of us struggle with our money, we don’t make enough and we don’t spend it wisely enough. So we end up living paycheck to paycheck with nothing put aside for a rainy day or an emergency.
Have you been struggling to get your finances in order, and feeling like it’s impossible?
If so, this blog post is for you. I’m going to guide you through the process of building a financial emergency fund that will help protect you when life throws unexpected challenges at you.
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How big should my emergency fund be?
Everyone’s situation is different, but most financial experts usually recommend that your emergency fund should be big enough to cover three months of living expenses.
Now that might sound like a huge amount but don’t worry. Your starting point should be $1,000. Once you reach that goal, you can start increasing the size of your fund.
And remember, three months of living expenses is not 3 months of income. It’s about your basic expenses should an emergency happen. That’s a very different figure to your usual expenses when times are good.
Related post: How To Survive, Thrive And Save Money On A Tight Budget
Why you should build an emergency fund
An emergency fund is the last thing most people want to think about when they are trying to get out of debt and build wealth.
Yet, it is just as important as any other financial goal. Setting a realistic emergency savings fund will help you achieve your long-term goals much faster.
Starting an emergency fund is one of the building blocks for financial freedom and freedom from money worries.
- A good emergency fund will protect you in case your car breaks down, or if your house needs repairs.
- An emergency fund will provide peace of mind knowing that whatever happens there is some money set aside for it.
- It provides some financial breathing room, so that in the event of a job loss or medical emergency you are not completely overwhelmed.
If you have an emergency that comes up, like a medical bill for example, and don’t have money to pay it with, your finances are going to suffer.
Where to keep your emergency money
The best way to keep your emergency fund safe is in a liquid, immediate access account. This means that you’re able to get money out of the account quickly and without any hassle, which will come in handy if something happens during an emergency!
The type of account should depend on what works for you – consider looking into online banks with higher interest rates or savings accounts linked directly to checking ones.
Either option pays more than just keeping cash under the mattress but still ensures it’s not hard at all when crunch time happens and you need that money!
Personally, I use an online savings account that is not attached to my main account. That way it is out of sight and not a temptation to dip into.
How to Build Your Emergency Fund FAST!
1. Evaluate where you’re at
Evaluating where you’re at is the first step in fixing your financial problems. Start with an evaluation, and be honest with yourself about what needs to change – then fix it!
Checking your bank account or other accounts will tell you if there are any red flags: for example, tons of fast food purchases or a lot more makeup than usual on that Visa card could indicate some overspending habits need changing.
- How’s your money situation?
- Is your income higher than expenses, or is it the other way around?
- How much extra do you have each week and month – that number is equally as important.
Write all these numbers down because we’re going to figure out how to fix any leaks in a moment.
I like printing off my bank statements for 1, 3, 6 months at a time so I can go through everything line by line with an eye on where my money goes every day before I get paid again next Friday (or whichever date).
It’s really helpful reviewing this information too so if there are anything missing from one paycheck but not another then maybe something needs some attention!
2. Fix your budget leaks
Fix the leaks in your budget to keep it afloat!
After I’ve printed off my bank statements, I go through and highlight necessary expenses in one color, and unnecessary expenses in another. It’s an easy way to see what’s going on.
Unnecessary expenditures are like tiny holes that can quickly sink you if unchecked – just a few little indulgences here or there add up fast over time!
- How often did you purchase fast food?
- How expensive was your last date night?
- What about all those grocery trips because of lack of planning?
- And how many coffee runs have been made out for convenience instead of cooking at home with real ingredients from scratch?!
If these seem small (and they are!), then consider that these small expenses can add up to a lot of money – hundreds or even thousands over the course of a year!
It’s easy enough to see how this happens: it all starts with just one little impulse purchase, and before you know it, you’re spending more than what’s in your budget.
Find your spending leaks
The first step to fixing a leaky boat is finding the leaks!
Everyone has their own budget leaks, so take some time and figure out what yours are.
Some of us have expenses each week or even every few days that we don’t consciously take into account when evaluating our financial situation.
These are often the most dangerous ones because they can add up quickly without being noticed until it may be too late – like with your car breaking down in an area you weren’t expecting to need gas for example!
You might think that small, sneaky leaks are no big deal as long as you keep them under control. But when all those little leaks add up over the course of a year or more?
You’re gonna end up with an ocean in your boat before too very much time passes. Either way, they need to be patched!
Whether it’s from coffee runs every morning or something else entirely – don’t let these pesky problems creep into everyday life without doing anything about it and causing major damage down the line.
Have fun but know your spending
On the plus side, there’s nothing wrong with having a little bit of fun (within budget of course!). Keep the good times coming by trying something new every now and then!
You can still have your morning coffee, just make it at home instead to try saving some money or get creative in the kitchen.
And finally, while going through these numbers make sure to start tracking your spending behavior!
It’s pretty easy to get into the habit of buying coffee or soda every day. But as soon as you start tracking how much it costs – and even more importantly how often you are spending on unnecessary items like this- then it will be easier for you to stop doing them!
3. Save bonuses and unexpected Money
Saving your refunds and bonuses can be a great way to build an emergency fund quickly. You might not even feel the difference in spending. Especially if you’re getting money back from taxes or bonuses at work.
Rather than blowing that cash on new clothes or going out for dinner with friends, save it! It’ll help keep you safe when life throws you surprises like losing your job unexpectedly.
This way you won’t have the burden of racking up credit card debt or borrowing money from friends and family when life throws a bad hand your way like job loss.
4. Set a monthly savings goal
One thing I always recommend doing is setting monthly goals around saving and building your emergency fund. This gets you into the habit of saving regularly, which makes it easier to do on a regular basis in your everyday life as well!
Regular saving will get you into good money habits, and it’s easier than doing it all at once. To make this process less daunting, I recommend setting up automatic transfers from your paycheck or checking account each month; this way there are no excuses.
No matter how small or large, there’s never any question about where these savings are going, or why.
5. Automate your savings
Out of sight, out of mind: the easiest way to save for emergencies is never touch it in the first place.
One easy way to do this? Set up automatic deposits into a separate account just for your emergency fund and forget about checking balances until you need them most!
You can do this through your bank or with an online service like Acorns.
This way, it’ll be easier for you to get into the habit of saving and building that balance without having to remember every month.
Try setting up auto-transfer for the day after your get paid so that money goes out before you have a chance to spend it too much!
If using an app like Acorns, select “Emergency Fund” as one of your goals and divert all your spare change directly to this account.
6. Don’t increase monthly spending or open new credit cards
Saving money is important so find a way to make saving automatic, and then don’t let your spending creep up again.
If you give up buying new shoes every month only to replace it with another shopping habit two months later that cost $50 more each time than the last one did, you haven’t saved at all!
You need to stick to your budget and leave your credit cards at home. There is no point saving into your new emergency fund if you are racking up a balance on your credit card!
Starting an emergency fund is important not just for your finances, but also for how you enjoy life.
Having a little bit of money saved up to use in case of some kind of financial crisis can be great both now and later.
Having time to save up is critical; try not to overspend today and make it harder on yourself to reach that goal tomorrow!
7. Make more money
Building an emergency fund comes down to a simple principle: more money in, less money out. If your income isn’t already covering your bills with some left over to add to your emergency fund, changes need to be made.
The good news? These changes aren’t painful!
And the bad news? You’re not going to build it overnight.
There are hundreds of ways you can make extra cash faster and easier so you’ll have enough for when life throws lemons at ya’. Building your emergency account can be quick and easy with a little creativity.
Whether it’s starting a blog as semi-passive long-term income stream or delivering food on UberEats after work (or both!), one thing that will always remain true is this: There are plenty of side hustles available where all you need is time.
Even if you can cut expenses, most likely you’ll still need more income.
Imagine if you could have an extra $1000 to your name each month, just by working a side hustle.
Sure it sounds too good to be true but the reality is that there are many ways for people like us who want more out of life than what they currently make in their 9-5 jobs!
The best part about side hustles? You can do them from home or while running errands and still achieve success.
building your emergency fund starts now
No matter how hard you try to build your emergency fund, fix financial leaks or make more money with a side hustle; life happens.
You shouldn’t feel bad about any setbacks because that just means things got in the way and it’s harder than ever for people to pay off debt when there are so many other expenses they have to cover as well.
But don’t give up! Keep reminding yourself about how far you’ve already come on your journey towards financial stability and debt freedom.
Building your emergency fund WILL happen because you will MAKE it happen.
Start taking back control of your money by grabbing your copy of the Money Saving Starter Guide today.
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Last Updated on 22nd August 2021 by Emma