Ever heard of emergency funds? Probably yes. But do you actually have funds set aside for emergencies? More like having funds outside of your general savings set aside purposely for unforeseen circumstances? I guess not. Imagine driving on a highway and hitting another moving car out of nowhere. The driver is harassing you to fix his damages. What do you do? Of course, insurance can cater to that. What about knocking into a trader’s products in the market? Yeah, that is what I am talking about. Because insurance will definitely not take care of that. So, it’s you enter your savings account or find money out of now where to pay for the damages. That, my friend, is an unplanned expense you have to make, which can ignite a lot of unpleasant emotions. If your savings wouldn’t make up for the damages, you either have to borrow the money from elsewhere or find another way. That may not have been the case if you had “emergency funds”.
Setting funds aside for emergencies is an essential part of your overall financial well-being as an individual. I know it sounds like an additional burden because you are already probably making a lot of expenses and trying to stay on track with your savings. However, this may prove useful to you in the future especially, when you are least expecting. And no, it does not have to be a chunk of your money or a huge fraction of your income. Starting small and developing the habit is more than enough. You will come to believe this if you keep up with this article.
Here are five suggestions that might help make building your emergency funds easier.
Start small; Your income may already be under pressure from all your financial obligations and starting this emergency fund may seem like hard work. But like mentioned before, you can start small. It could just be as low as 5% or 3% of your entire earnings or income. What matters most is that you have started this journey. You can even get more funds by cutting down on certain unnecessary expenses and channeling the money into your emergency funds.
Stay consistent and disciplined; In all honesty, we can seldom achieve anything without self-discipline. It’s a great step to start and start small. But what will happen if that small beginning is squashed along the way? You achieve nothing. If you stop pouring water into your glass midway, your drinking glass will never get full. You need to be very committed and consistent to achieve great results.
Set an achievable target; You want to build an emergency fund, which is great. But you also need to set a goal for yourself. Not an unachievable and weightier one, but an achievable one from the start. This will be a lot easier to achieve and not scare you off or exert unnecessary financial pressure on you. Say, you decide to hit $100 dollars in your first three months, considering your earnings and expenses. This is a much smaller and achievable goal than uprightly setting a target of say $1000 within the same three months. Reaching your goals will also serve as motivation for you.
Try not to prioritize your emergency funds over your savings and living expenses; Remember emergency funds are for unforeseen circumstances. The issue is not present yet. You are only making provision for that unseen situation, such that, you wouldn’t be found wanting when it actually comes to light. This fund also yields no interest because it’s money that’s easily accessible. So why push a chunk of your money in there, anticipating an event that might never even happen? The idea is to prepare yourself for the emergency, not prepare for yourself, the emergency.
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Automate your emergency savings; Another way you can help yourself save is by setting automated deductions on your account. By opening a separate account for your emergency funds, you can let your bank automatically transfer the percentage you have deposited into this emergency fund account on a periodic basis. Because you are not seeing or touching this money, you are most likely not to overthink it.
