Building up your emergency fund will save you a lot of headaches in the future. You owe it to yourself to make sure that your future will be spared from the stress of dealing with a problem without any hope for financial assistance. Think about it. Wouldn’t it be great to be able to face your future without any fear of the uncertain because you know you have built your financial security net?
You will never know what the future brings. Even if you are doing well right now, a sickness, accident, job loss or an economic downturn can take that all away. Be prepared to handle anything by building up your emergency fund.
The question is, how can you do this?
First is to make a decision as to how much you will target to save. Do not base it on what is left of your income after expenses. As much as possible, make a decision based on what you will need. You can base it on a certain percentage of your income. For instance you should have at least 50% of your income multiplied by 6 months as your reserve fund. Or you can base it on your current expenses. Just remember that your expenses now may not be true next year. A baby or a new home can alter your expenses drastically. But nevertheless, decide on an amount.
Once you have this information, open a separate bank account for your emergency fund. It is advised that you choose an account that is not convenient to withdraw money anytime and will generate your interest. It can be a certificates of deposit or a savings account. Keep it separate from the account that you use to spend regularly for groceries, gas, food, etc.
After that, decide how much you can save every month. Draw up your budget and spending plan to decide if you should put aside $1,000 or $500 every month. You can decide on a specific amount or a percentage of your income (10%, 20%). Make sure that the amount you will place on your emergency fund is realistic. Do not deprive yourself of the things that you know you need to keep yourself happy and content. While you want to build this fund immediately, do not force it. The important thing is to start - regardless if the amount is small. Some people do not start saving because they are discouraged that they can only put aside a small amount. That does not matter. Any small amount can grow significantly if you keep on adding to it month on month.
To help you stick to your goal, set up an automatic deposit with your bank. It is best to treat your savings like a bill so you are forced to send money to your account.
Once you have the ball rolling, keep adding to it and find ways to grow your income so you can save more. Get a second job or set up a passive income business. As you see your emergency fund grow, you will realize just great it feels not to worry about anything in the future.
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