Accidents, illnesses, loss of job, or any difficult situation can arise at any given time. An emergency fund acts as a safety net and can help you deal with any unforeseeable circumstances that may arise in the future. The mortgage professionals at Rex Homes has some helpful insight on what you need to really build this emergency fund.
Importance of an Emergency Savings Fund
An emergency fund will give you the financial backing to remain afloat in difficult times without requiring to depend on credit cards or loans. If you have an existing debt, it is recommended to start building an emergency savings fund to avoid having to borrow more money if any emergency arises.
How to successfully build your Emergency Savings Fund
Saving money may seem like a difficult task, especially since we have so many daily expenses to take care of. But with good planning and budgeting, you can start contributing to the fund. Here are some steps you can follow to successfully build your savings fund.
Define the Rules: You need to begin by defining what unanticipated expenses qualify as an emergency for you. Buying a new TV set may not qualify as an emergency. Hence, you need to first define what is a true emergency in which you can use this fund.
Set your Budget: Once your emergency is defined, you can begin with setting up your budget. Create a list of your monthly expenses such as rent, utilities, food, and other household purchases and set aside an amount that you will be contributing to your fund. Many financial institutions have an online financial calculator that you can use to determine your expenses and your budget
Make Contribution: After your budget is fixed, ensure to make fixed contributions to the fund every month. You can also set up automatic payments to ensure that you are regularly contributing to the fund. It is recommended that in the beginning you contribute even the amount remaining from your income after your monthly expenses and contribution budget into the emergency fund so that you are prepared if anything comes up in the short term. Once you have a good fund established, you can revert to contributing the set amount and feel relaxed that you have a good safety net established.
Start Small: Even if your savings goals sound overwhelming in the beginning do not feel discouraged. The key to building a successful fund lies in starting with small contributions and setting up realistic goals to make savings a long-term habit.
Other options to add contributions to your fund include:
- Cut your regular expenses
- Sell your household items
- Get a second job and explore alternative income opportunities
Monitor your Progress and Celebrate Success: Experts always suggest that you should check your progress regularly. Once your savings begin to grow, you will appreciate that the goal you had planned is actually being realized. Celebrate your success and do not hesitate to use the fund when you face actual emergencies.
The COVID-19 pandemic has made us all aware of how fragile finances can be and the importance of creating an emergency fund. We cannot predict what will happen tomorrow, but having a strong emergency savings fund to rely on can reduce our risks and keep us prepared for any unexpected situations.