An emergency fund is considered a cash reserve that you can access in case large or unexpected expenses come up. Setting up an emergency fund is a useful way to protect yourself and your family in times of need without sinking into debt. After all, people often resort to taking out loans or relying on credit cards when they’re faced with unforeseen events. Having an emergency fund can help you survive or financially recover even in the worst case scenario.
However, it can be overwhelming to go about starting and growing an emergency fund if you’ve never done it before. Should you take out a huge portion of your savings now or should you gradually build your emergency fund over time? The first option will probably work if you already happen to have a lot of money saved up. If not, there is nothing wrong with setting aside a small amount from your monthly income and slowly working to build your emergency fund over time. Here are a few tips that can help you do this.
Put Your Emergency Fund in a Separate Savings Account
It’s safer and more beneficial to keep your emergency fund in a savings account that’s different from the one you regularly use. That way, you can leave that account untouched and avoid dipping into your reserves. Many banks offer high-yield savings accounts so your money can earn a yearly interest too.
If you want to keep tabs on the money in your account with ease, you can switch to online banking and use your bank’s internet banking portal or native app. Here at Robinsons Bank, we have the RBank Digital, a service that you can download as an app so you can carry out transactions on your phone or laptop from the comfort of your own home.
RBank Digital makes it easy to monitor your finances as you can do online transfers, payments, and other transactions on the website or application. You can also use the additional features to locate ATMs in your area and make cashless QR payments. No matter what type of method you prefer for banking, just make sure to store your emergency fund in a different bank account. Doing so essentially means you can readily access these funds anywhere in case a real emergency occurs.
Save Up to a Half a Year of Expenses
When it comes to figuring out how much you should have in your emergency fund, look at how much you spend each month first. At the very least, you should have enough to cover up to 6 months of expenses in your emergency fund. This is a good base amount as it can help you survive for a few months if you suddenly lose your job. It can also be used to cover medical expenses in case of an emergency trip to the hospital.
Of course, the right amount varies from person to person and is largely dependent on your lifestyle and needs. If you are unmarried and still live alone, you likely won’t need to set aside an exorbitant amount of money for your emergency fund. However, if you have school-aged children, this amount will have to be a lot bigger since you have to think of yourself and your little ones. If you’re still in doubt, speak with a financial expert who can help you assess your needs to arrive at a workable amount to work toward.
Start Small But Be Consistent
As you’re beginning to build an emergency fund, set a realistic amount that you plan to save each month. It doesn’t have to be a large amount, and it is often better and more sustainable to set aside a small amount each month. Saving a little at a time can still eventually yield a large amount of savings as long as you do it consistently.
One way to do this is to transfer money into your savings account immediately. Once you get your paycheck, immediately deduct the amount you plan to save and deposit it into your emergency fund. Then, you can keep the rest to spend on your wants and needs. If your employer provides your salary via direct deposit, you can request that they break up your payment into different accounts so you can keep saving consistently.
Keep Your Change and Save Your Tax Refunds
Your spare change can amount to more than you think. While it may just seem like a few coins to you, over time, those coins do still add up. Make it a point to put away any spare change that you have in a piggy bank or a bottle. Once it’s full, bring it to the bank to deposit it into your bank account for your emergency fund. Similarly, you can do the same with your tax refunds. If you work in a field where you can expect to get a tax refund every year, keep you the money and put it in your emergency fund instead.
While both these methods might not seem like much, they can still make a difference in growing your emergency fund. What matters is that you continue doing these so that the amounts add up as time goes on.
Declutter Your Belongings and Sell Them
If you feel like you won’t be able to meet your savings goal for the month for one reason or another, you can try to earn money from selling your old things. There are a lot of online marketplaces where you can easily put up the items that you want to sell and interact with the people who are interested in it. If you manage to sell a lot of your stuff, you can still meet or even exceed your savings goal for the month with your earnings.
Selling your old belongings does more than provide you with additional funds that you can deposit into your savings account. Doing so can help you get rid of unwanted stuff and free up space in your home too.
Try to Earn Extra Income
Another way to meet your savings goal during particularly trying months is to look for a way to earn a side income. One-time income opportunities or second jobs are different ways to go about this. If you have a high-income skill, advertising your services and getting a freelance or part-time job can really help boost your income, even by a bit. You can also volunteer for odd jobs like pet-sitting gigs, paid surveys, focus groups, and more. Not only do you get to restock your emergency fund but you also get to help people too.
However, make sure to accept legitimate job requests and avoid joining any pyramid schemes or multi-level marketing companies that promise you a large income. Many recruiters from these groups specifically prey on vulnerable people who are looking to make a side income and make outlandish claims to get them to join. You will only sink yourself further into debt instead of making extra money if you let yourself get taken in by these cult-like businesses.
Adjust Your Budget as Necessary
If you feel like it is still difficult to meet your savings goals every month, try to look at your spending habits and see if you can reduce anything. There may be memberships and subscriptions that are secretly deducting more of your income than you think. If so, it might be good to cancel them. Additionally, try to see if you can spend less on necessary things or see if you can buy them in bulk to save more.
You can’t really do without items like toilet paper, shampoo, and toothpaste. But buying a large bottle or a pack of them can keep you from having to replenish them all the time. Look at your food and beverage budget as well. While buying coffee from a cafe and eating out is nice, you don’t have to do it every day or every other day. You can buy your own groceries and make your own food and coffee at home.
Draw a Line Between Emergencies and Everything Else
Keep in mind that your emergency fund does not necessarily have to be all your life savings. Once you’ve gotten it past a threshold that you’re comfortable with, you can start a different account for other funds such as vacations, clothing, and retirement. Instead of pouring the majority of your savings into your emergency fund, you can start putting away money into those reserves. too.
After all, the point of an emergency fund is to serve as a buffer when times get tough. It’s not meant to be the fund that you dip into for your passions and future milestones. If you feel that you have too much money in your emergency fund and need help figuring out where to allocate the extra funds, talk to a financial advisor or a bank employee. They can help you sort out your priorities so you can start a different savings account that you can prioritize.
It is important to save for unexpected events, no matter where you are in life. You never really know when things go wrong and it’s better to have some money that can ease your burdens, even for a while. Having an emergency fund can truly mean the difference between a short-term period of struggle and a full-on financial disaster.