What you need to know to start your emergency fund.
No matter how much we prepare for potential setbacks, the unexpected can always happen. Your car can break down, your roof could start leaking, or you could be facing unemployment. If you think about your financial picture, do you have enough to cover (or at least offset) any unforeseen costs? If your answer is no right off the bat, then establishing an emergency fund should be a priority.
In this blog article, we’ll explore why it’s important to have an emergency fund on hand and offer some tips on how to start saving.
Why is it important to have an emergency fund?
An emergency fund is a liquid savings account with money set aside just in case something financially unexpected occurs. NerdWallet mentions that this account creates a money buffer, allowing you to stay afloat in a time of financial need without relying on credit cards or high-interest loans.
How much should you have in an emergency fund?
The answer depends on your financial situation, but as a rule of thumb, it’s a good idea to have up to six months of living expenses saved. You’ll want to be able to cover rent or mortgage, utilities, transportation, food, insurance, and any other regular expenses you may have.
How do I start saving?
The idea of saving up that amount of money may seem daunting, but it doesn’t have to be! Any amount you can contribute is a good start. Here are a few quick tips that can help you get started:
- Set a monthly savings goal. Making a goal for yourself helps manage your expectations. Sit down and figure out what your expenses are, where you can cut back, and how much you can reasonably afford to put away.
- Make it automatic. By setting automatic transfers to your savings account, you’ll start saving without even thinking about it.
- Save your savings. If you brew your own coffee in the morning instead of stopping at your local shop, it may seem easier to spend that money you saved on something like going out to lunch. Instead of spending those savings, no matter how small they may seem, put them into your emergency fund. Still not convinced? Check out our Impact of Saving More calculator. You might be surprised to see how fast it all adds up!
Regardless of how you choose to build your emergency fund, the most important thing is that you start saving. You’ll have peace of mind knowing that you’re helping yourself later!