It is good to be prepared for financial emergencies because life is unpredictable. It has been particularly challenging to cope financially amid the ongoing coronavirus pandemic.
Almost 6.32 million Americans face unemployment, with some individuals hardly making ends meet. Perhaps it is for unprecedented times like these that you should set aside some savings, but there are different lending and borrowing money apps as well that can come to your rescue. Nonetheless, this blog discusses tips to build an emergency fund so you can survive any crisis.
What’s an emergency fund?
An emergency fund is where you save money for different emergencies. It’s a personal bank account that you set aside to manage finances when the times are tough. The main motive behind setting up an emergency fund is to cover unexpected events such as medical expenses, home repairs, job loss, accidents, and the like.
Here are the six best tips to start building your emergency fund
Making a conscious effort to save money can be challenging, but stay focused to achieve your target. Even the smallest amount of money saved up over time can grow a solid emergency fund for you.
1. Set several smaller saving goals instead of a large one.
Though experts generally recommend that you save three to six months’ worth of expenses in your emergency fund, it may not be practical for many of you. The best way to set yourself up for success from the start is to have smaller saving goals and progress your way up from there.
So how to approach this? Reinvent your goal.
For instance, you may start saving enough to manage your expenses for a month. Once you’ve reached your goal, build two to three months’ worth of expenses. You can add non-essential expenses such as a smartphone data plan to your mix.
You must realize that you have the power to decide and control your financial goals, which can change to adjust with the other changes in your life. If you need a little help to decide what a reasonable goal should look like for you, start tracking your fixed and variable monthly expenses.
These are a few examples of fixed expenses:
- Mortgage or rent
- Insurance and auto payments
- Health insurance
These are a few examples of variable expenses:
- Utility bills
- Pet care costs
Once you identify your monthly expenses, use that figure as your standard to set your first goal.
2. Save what you can.
Most people are prone to thinking – “go big or go home.” We want to get anything we set our eyes on as fast as we can. But that instantly leads to increased stress and anxiety.
The truth is, only a few individuals can build emergency funds overnight. Saving money is a time-consuming process, plus emergencies can happen anytime that can set you back from time to time.
Start small and start saving what you can if building your emergency fund seems stressful. For instance, cancel a few subscriptions, pause your meal box and beverage purchases, or drop any other conveniences until you have saved one month’s rent money. Any extra amount of money you manage to save up, no matter how big or small, is worth celebrating.
3. Make small changes to save up in the long run.
A few small changes you make now can help you save up for a better future.
For example, let’s say you get dinner delivered at $30 a pop three times a week while working from home, which adds up to $90 a week or $360 a month. If you take only one delivery instead of three each week, you can save about $240 a month that can go towards your emergency fund.
Making small changes to your spending habits can help you build savings. If you’re living on one income, you must certainly reduce your living expenses. Initially, it may be challenging to develop a money-saving habit, but once you gain momentum and see your emergency fund growing, you’ll want to keep going.
The key is to look for small moves when you aren’t sure where to start. For instance, pay for groceries in cash, set up direct deposit to your savings, bike to work, and make more small changes like these.
4. Set a deadline for your emergency fund.
One way to push yourself to reach your financial goals is to set a deadline for your emergency fund. However, be realistic when you’re deciding your financial goals. You can either maintain a diary, mark a calendar to manually keep track, or take the help of money tracking apps to check your progress.
You must remember that life’s not always clear-cut. So, don’t beat yourself up or lose focus if unexpected expenses come up or there’s a job loss. Simply move your deadline ahead to a new reasonable target.
5. Repay your debt alongside.
According to Experian, Americans were carrying $6,194 in credit card debt on average in 2019. High-interest rates could be cutting into your savings, so if possible, pay off your debt while rebuilding your emergency fund. This can save you hundreds or thousands of dollars over time.
For instance, you can borrow what you need to pay down to cover all or most of your credit card balances with an emergency loan or a debt consolidation loan. Then, either you or your lender can pay off your creditor, and you can make one single payment to your lender, typically at a much lower interest rate.
But before you take out a loan, be sure to assess your situation (and the lender) carefully. You’ll want to know if you’re getting the best rate and terms at a monthly payment that is affordable for you to pay each month. You can look at apps to borrow money online and choose the option most suitable for your current situation.
6. Stash your cash in the right place to make money.
Your emergency fund should be making you money at all times, but you need to make sure that you save it in the right place. One of the best ways to do so is by using a high yield savings account that pays a higher interest rate than a standard checking account.
You often have to start with a large opening deposit to open a high-yielding savings account. In the beginning, it is better to open a simple interest-bearing savings account instead. You can upgrade your savings account that yields a higher return once your emergency savings grow.
Other options that may offer higher interest rates are mutual funds, money market accounts, and short-term certificates of deposit. Although, there could be withdrawal limits or penalties if you withdraw early due to any emergency.
The bottom line
Remember, no action is too small, and it takes time to build your safety net. Dedicate time to reflect on your saving goals, set deadlines that are reasonable, make payments on time and early if possible, make adjustments, and celebrate your little wins along the way.
If you find yourself struggling with having little to no emergency fund, fret not because there’s help available. Lendee is a trustworthy app to borrow money online. It gives you access to a network of investors who’ll be willing to lend you money. No matter what your credit score is, Lendee will make sure you receive a loan at a fair rate.
Download the Lendee app today to get exciting offers and the most rewarding experience.