It can be easy to let an emergency fund get pushed to the back burner when you have dozens of immediate expenses to take care of, but here are 5 essential tips for building an emergency fund as it is important to prioritize as much as possible.
An emergency fund is a very important financial safety net that helps protect you in the event of an unplanned expense, such as losing a job, medical bills, car maintenance, and so on. However, many Americans either don’t have an emergency fund at all or wouldn’t be able to cover more than $1,000 for an emergency.
1. Set Savings Goals and Be Consistent
Rather than setting aside money here and there when you think of it, try to start by building a regular savings habit. One of the easiest ways to do so is by setting up an automatic recurring transfer. First, identify your main goal for your emergency fund — this can help you stay on track and have something measurable to work towards. Then, set up your recurring transfers and regularly monitor your savings progress to not only ensure you’re meeting your milestones but also provide encouragement to keep building.
2. Put Away Any Extra Income
There may be times throughout the year when you receive a lump sum in addition to your regular income streams, such as a tax refund, a cash gift, or another one-time event. It can be incredibly tempting to spend, but putting away even some of that extra cash can help you supplement your emergency fund and grow it even faster.
3. Optimize Your Cash Flow
Managing your cash flow is being aware of when you are receiving money and when your money is going out for expenses and spending. If you’re not keeping an eye on this, it can be easy to come up short at the end of the month and make it difficult to have any left for savings. If you have regular monthly bills that are scattered throughout the month making it tricky to leave any leftovers, in a lot of cases you can adjust your due dates to make the organization of your bills more manageable and to coordinate them with when you receive your income.
4. Utilize Employer-Based Saving Opportunities
If you are receiving a regular paycheck through an employer, it may be possible to divide your monthly income between a checking and a savings account. This can be particularly helpful if you find yourself tempted to immediately spend the money you get from your paycheck and drain your account quickly. If this can be done automatically, it will make it easier to put that money away without having to think about it.
5. Celebrate Your Successes!
It can be difficult to stick to an emergency savings plan but don’t get discouraged. Start small if you have to, and then be sure to celebrate yourself when you start sticking to your savings goals. The more consistent you stay, the more you’ll realize that it doesn’t have to be that difficult after all! And when you reach your goal, set a new one and keep going.
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