Sudden hospital visits, accidents, house repairs, major car fix, typhoons, disasters, or and unemployment.
Do you have money to spare if any of these things happen?
In case your answer is none, think again.
If you’ll be using your credit card, take out a loan or borrow money from other people is your solution, you might find yourself drowning in debt later on.
Emergencies may happen to all of us anytime. No one is exempted.
Savings and emergency funds are often mistaken as one and the same. But actually, they’re not.
Savings can be used for multiple different purposes, unlike emergency fund which is primarily intended for unexpected financial situations.
Savings may be for a particular goal like when you prepare for a travel, a wedding or for a house downpayment. An emergency fund is strictly for emergencies.
Good thing if you have both but as much as possible, try to prioritize your emergency fund. The rule of thumb is to save an amount enough to cover for three to six months worth of living expenses. It seems intimidating but it is not as hard as it sounds.
In this post, I’ll help you find ways on who to establish your emergency fund from scratch.
Budget and Automate
It is hard to squeeze this on to our budget since we don’t feel its urgency for now.
The amount doesn’t need to be drastically big. Check your usual expenses and determine what portion of your income can be practically allocated to the emergency fund. Start small. If you get too overwhelmed, most likely you’ll fail to save.
Establish automatic transfers into a savings account to avoid the temptation of using the money somewhere else and to develop the habit of saving regularly.
Pay your debts
If you think that you can’t start an emergency fund because you still have debts to pay, you are wrong. Do you know that some financial experts recommend establishing an emergency fund first before paying off debts? Surprised? It’s simply because if you don’t have cash reserves for unplanned bills, you’ll probably end up racking more debts.
But this doesn’t mean you take paying debts irresponsibly. Loans incur interests and penalties if you fail to pay on time. Pay your debt as strategically as possible without sacrificing your contribution to the emergency fund. Once you’re debt-free, the more you can put up funds for other things.
Track your spending
Do a lifestyle check. Reduce your expenses.
Start from avoiding daily small purchases. That cute, little purchases or add-ons in Amazon or that take out coffee can actually kill your finances when accumulated.
Review your subscriptions.
Unsubscribe to that weekly food delivery and do your own grocery instead. Learn new recipes and cook your own food. By doing this, you get to save and at the same time develop a new skill.
Drop that gym membership. Consider exercising around your neighborhood and meet new people or try free youtube’s workout video at home.
Stop Netflix for a while and watch regular channels instead.
Try carpooling or walk or bike yourself to work if possible. Go straight home and avoid stopping by the store if you don’t have anything to buy important to buy. Instead, plan and schedule your trips to the store.
Live a healthy lifestyle. Quit smoking and lessen alcohol intake. This can actually prevent you from using your emergency fund for medical purposes.
Start a side hustle
Are you living from paycheck to paycheck and have no additional bandwidth for emergency funds? This is often one of the reasons why people don’t start saving. But there is a way to go around that and that is to increase your income by starting a side hustle.
Use your talents and skills to earn extra cash.
- Be an Uber driver
- Be a virtual assistant
- Design websites
- Be a freelance content writer
- Build a blog
- Be a tutor
Be extra resourceful.
Raid your closet and sell pre-loved items online or hold a garage sale.
Are you into baking? Take advantage of the holidays and sell cakes and pastries.
Sell crafts. Personalized items are perfect gifts this festive season.
Resell anything in exchange of commissions.
Emergencies can strike anytime so make sure that it’s withdrawable and accessible. This is why you can’t put it in time deposits, stocks or bonds. A regular savings account will do or in a money market account which offers higher interest rates while still maintaining easy accessibility.
“Let’s cross the bridge when we get there,” is not the proper mindset. A financially responsible person is someone who is confident about the future.
Start building an emergency fund now.