We all understand the need to have an emergency fund, but it can be challenging to know where to begin. It’s simple to become preoccupied with current costs and lose sight of the future. The good news is that doing an emergency fund doesn’t have to wait until you’re wealthy or even content with your financial situation. Anyone may build their own emergency fund by following these instructions—even those who are just starting out with money!
Importance of having an emergency fund
A sum of money set aside expressly for emergencies is known as an emergency fund. It’s intended to safeguard your finances in the event that you suddenly need access to money.
If you’ve ever been laid off, had an unexpected medical bill or car repair come up, or experienced other financial setbacks that required cash on hand right away–you know how important it is to have an emergency fund.
When faced with difficult times, even saving 10% of your paycheck can make a significant difference. Having peace of mind knowing that whatever life throws at you next, you’ll be able to handle it without falling into debt or selling assets that are crucial in the long run (such as retirement savings).
Make a budget plan to see where you can start saving more money.
To begin, you need to make a budget plan by creating a list of your income and expenses. Be realistic about your income and expenses by looking at past receipts, bank statements, or other documentation that will give you an accurate picture of your spending habits in the past month or year.
Once this has been done, look at each category separately: fixed expenses (those that are the same every month), flexible expenses (those which vary from month to month), and non-essential items such as entertainment or eating out at restaurants instead of cooking at home.
Determine your emergency fund goal.
After deciding to build an emergency fund, proceed with the step of figuring out how much money you’ll need. The solution will be determined by several criteria, including:
- You want your fund to last for how long? If the goal you set is simply to have less than a year’s worth of salary in the bank in case of a sudden medical emergency or a layoff, then your number may be lower than if your goal is three years’ worth of living expenses (the recommended minimum). With all the crazy things we experienced during the pandemic, being prepared anytime is what we can do best, right?
- What are the upsides and downsides of saving this amount? For example, if it would take six months for an unexpected expense like replacing lost luggage or buying new tires on your car–both common situations where people use their savings–it might make sense for someone with a shorter-term goal (like six months) not worry about putting aside extra cash every month until they reach their target. Meanwhile, if you’re worried that an incident could happen often enough during your lifetime that will make you end up struggling financially without an adequate safety net built up beforehand, then saving up enough money so that there’s always some cash available when needed could be worthwhile even if it takes longer than anticipated.
Set up a direct deposit.
Ensure you’re allocating your money where it needs to go without fail. To avoid mistakes when transferring money from one account to another, sign up for a direct deposit and double-check all of the information to be sure it is accurate. If everything looks good and there aren’t any issues with payments being made at the wrong times or amounts, then congratulations! You’ve successfully set up an automatic payment plan to keep you on track with your expenses!
Gradually increase your savings.
You should save a little more each time you get paid. Whether the money you make is big or little, there’s always room to increase the size of your emergency fund. If you’re making P30,000 per month, set aside 3,000 (10% of income) and put it into savings every paycheck until the goal amount is reached–that way, even though the monthly contributions are small, they’ll add up over time.
What if my employer doesn’t offer direct deposit? Can I still use this method? Sure! Just open an account at an online bank that offers free checking, then link it up with their mobile app so that every time they deposit money into our account, we get an alert on our phone or desktop computer telling us exactly how much cash has been deposited into our account at any given moment. Once this setup is complete, all we need do is transfer funds directly from our paycheck onto whatever savings goals we’ve set up: whether that means putting 20% each month or saving as much as 50% toward emergencies before anything else gets paid out automatically using this method instead of letting cash flow freely through our hands without any sort of budgeting whatsoever!
Save unexpected income.
A 13th-month pay, a company bonus, a performance bonus, an unexpected freelance job, or a gift, consider saving all of it! Saving unexpected income is a great way to build up your emergency fund, but it can also be difficult for many people because there’s no guarantee that you’ll have any extra money. The key is to make saving as automatic as possible so that even when you don’t have time or energy for other financial tasks, this one gets done. Set up recurring deposits into the same account every month until it reaches its goal amount–this ensures that there’s always some cash sitting around waiting for whatever comes next!
Keep saving after reaching your goal.
Once you’ve reached your emergency fund goal, it’s important to keep saving. Making a consistent strategy and setting up an automated savings plan, where money is automatically deducted from your paycheck and deposited into a different savings account, are the best ways to do this.
Consider opening a high-yield online savings account that doesn’t charge monthly fees or minimum balance requirements. These accounts make it easy for people who want quick access to their funds–but they don’t offer much interest in return compared with traditional banks’ CDs or savings accounts.
Treat emergency funds as a financial security blanket.
If you have an emergency fund, treat it as the financial safety net that it is. Your emergency money should be maintained in a secure location except in an emergency.
If an unforeseen expense arises and you do not want to utilize your normal income or credit cards, withdraw funds from your emergency fund instead. This will help ensure that when an unexpected expense comes up, there’s no need for panic or stress because everything is covered by having money set aside specifically for these critical situations.
Don’t use this money as an excuse to buy something else on impulse. If you want to spend on something unplanned, hold off until the next paycheck when it can be purchased responsibly without draining any funds from other areas like bills.
Protecting your health, assets, and your overall financial future
Protecting your health, assets, and overall financial future is the best gift for yourself. It is also something that many individuals overlook until it is too late.
The bottom line is that an emergency fund should always be kept on hand. It’s the most effective way of protecting yourself from unanticipated expenses, and it can also help you save for a large purchase or goal. If you’re looking for ways to start saving more money today, consider setting up a direct deposit from your paycheck into an online savings account so it comes out automatically every month without any effort on your part–or even better yet: make this process automatic so there’s no way it’ll ever slip through the cracks!
Juan Goals 