If 2020 has taught us anything, it’s that emergencies can happen to anyone at any time.
Emergencies can range from natural disasters, medical emergencies, job loss, etc. Life is full of curveballs, and we cannot always control what happens, but we can do our best to be financially prepared.
What is an emergency fund?
Emergency funds are available cash you have set aside for an unexpected event. This money is not designated for vacations or a TV upgrade. This money should remain untouched unless a true emergency arises. Experts recommend keeping 3-6 months of income saved in your fund.
Where should this go?
As referenced earlier, it’s important for your emergency fund to be liquid, which means you can access it easily and quickly. Your best options are to hold it in a checking account or a savings account. While quick accessibility is important, make sure not to tempt yourself to use your emergency fund for non-emergencies.
How do I build it up?
The magic financial word that we all love to hate: budget. It may not be reasonable for you to pour 6 months of earnings into an account overnight. Build upon your account each paycheck. Evaluate your budget to see where there may be some wiggle room to increase your savings. As time goes on, you may find unused funds at the end of each month. Put those toward your savings. You will find that it will grow quickly over time.
Aside from your monthly earnings, there are other creative ways to build your savings. Host a garage sale, sell some unused furniture, turn your hobby into a side hustle. You can even ask family and friends for side projects to earn a quick one-time income opportunity.
Set a goal
Once you have decided how much you want your savings account to be, set a goal and a timeline according to your budget. This will help you to track your progress. When you hit big milestones, celebrate! Find a way to treat yourself and continue your good work.
It’s hard to accomplish your goals without someone on your team to help hold you accountable. Whether you request emails from your bank, check in with your spouse, or have a friend who is also trying to build their savings, it’s important to ensure that someone knows what you’re trying to accomplish and can both hold you accountable and celebrate victories.