Having an emergency fund is like having a +4 UNO card and waiting for the right time to use it. Unexpected emergencies are plentiful the moment you step into adulthood. It could be a huge medical bill; your car broke down or losing your job. By starting an emergency fund, it’s like you’re taking a huge leap into your financial stability journey.
Just think about the tranquility of mind when you know you’re backed up no matter what and you don’t have to over-think or over-worry about what might happen in the near future. We live in uncertain times and unemployment has increased due to lockdowns. Young people are more likely to suffer from unemployment which makes the matter even worse as they are rarely financially secured at a young age.
If you’re a beginner, this is your guide to start an emergency fund today.
Make a Budget
You want to start with a realistic plan and goal for your emergency fund. You don’t want to start saving huge amounts and end up finding yourself in need of all the money you just saved. Take baby steps; after calculating your monthly/daily expenses and putting aside your financial commitments, you can start by saving the excess of your money. You can start as small as saving 100 USD each month.
Know where to save your money
Based on experience, I found it extremely helpful to make my savings account out of reach as much as possible. I kept my money in a different bank altogether, anywhere where it’s far from my current bank account and far from any temptation to withdraw money from it.
To maximize any return on your savings account, you’ll want to consider keeping your emergency fund in a high-yielding account. The higher the APY, the more your savings account will earn.
Make it automatic
No one wants to go through the pains of manually putting your money into an emergency fund, the thought will stay at the back of your head of where you kept your money and how much did you contribute. Therefore, many banks offer the service of automatic withdrawal on your payday and deposits the amount of money into your emergency fund.
Increase your savings by time
This is a step you can take when you feel you are able to contribute more without affecting your monthly expenses. It might be an increase in your paycheck, a paid debt or just extra money you came upon as a gift or a bonus, saving this extra money can give your emergency fund a boost.
Check on your progress
You want to set your goal to cover three to six months of emergency fund, this way you will be backed up by this amount of money until you can get back on your feet to think of other ways to earn money.
After reaching your savings goal, don’t slack or stop saving. Think of the worst-case scenario, you might need more than six months’ worth of fund, emergencies might occur anytime and you want to be prepared.