Having some savings can lift you out of a troublesome situation. From home repairs to hospitalization, many things can rock your financial boat. Each financial guru has their own definition of an “emergency fund,” but essentially it is money set aside to cover large, unexpected expenses. It serves as a buffer to keep you afloat in a time of need without having to take out a high-interest loan.
Set Your Goal
The amount you need to set aside depends on your financial circumstances, but experts recommend having enough to cover three to six months’ worth of living costs. Suppose you lose your job, you’ll still have enough to pay for necessities until you find a new one.
Keep This Fund For Emergencies
An emergency is something that affects your health or ability to earn money. Expenses that aren’t surprises, such as car insurance; vacation; and the chance to get a deal on something you don’t need should not be taken out of your emergency fund. Once you’ve reached a realistic threshold for this fund, you can open a different account for irregular but unavoidable items like clothing, getaways, and car maintenance.
Start Building Your Emergency Fund
1. Open a separate bank account for this purpose. This way, you won’t be tempted to dip into your reserves. It’s also important to have quick access into your account since an emergency can strike at any time. A savings account, short-term certificates of deposit, or a money market account all give you the liquidity that you need.
2. Get into the habit of saving. Transfer a set amount to your savings account each time you get paid. You can automate this task to make it less daunting. Meanwhile, save all the small change you get. Those $1 and $5 bills, when accumulated, can be substantial. Put them into a jar and when it fills up, move it into your savings account.
3. Cut expenses. If after deducting all your monthly expenses you’re left with nothing, find areas of your spending you can trim. You can save more by cooking meals at home, carpooling, and avoiding takeout coffee. Use your small change to build your stash.
4. Save your tax refund. Once a year, you get a shot at saving your tax refund. It’s an easy way to boost your emergency fund. You might want to have your refund deposited straight into your emergency savings when you file your taxes.
5. Find fast cash. Selling unused items is an excellent way to accumulate more money for your fund. If you have designer watches, bags, or jewelry, find a reputable buyer to get quick cash. Biltmore Loan and Jewelry is one of the most trusted lenders and outright buyer of high-end assets in Arizona. Take advantage of their competitive rates and earn more from your valuables.
Don’t let yourself fall into debt when you’re faced with a tough financial problem. Always be ready with an emergency fund. Save monthly, cut your spending, and sell some of the stuff you don’t need. Remember that being debt-free is a crucial step to financial freedom.