You have an amazing life. Your job is sufficient. You have more than you need. You are nearing your financial goals.
Does the above remind you of yourself? Are you certain that you are financially stable? Think again!
Imagine something big comes up. A doctor announces that your wife needs a surgery or your car breaks down and requires fixing, or in the worst-case scenario, you lose your job! That job was your only source of income and now your life is not that amazing anymore.
However, there is a simple way to prevent that from happening. All you have to do is start building an emergency fund!
Tips on Building an Emergency Fund
Let us help you in figuring out how to build an emergency fund by following the simple tips below:
While saving money is difficult, especially when you are on a tight budget, it is not completely impossible. The trick is to go slow and work on your emergency fund with consistent savings in small amounts rather than putting chunks of money in, at any one time, as savings. This will help in growing your emergency fund steadily.
Below are some amazing strategies to assist you in getting started:
- Set up an automatic deduction system on your paychecks. For example, $25 can be deducted from your weekly paycheck and it is deposited in your savings account. This way, you will have a saving of $1000 in about a year’s time.
- Using your tax refunds and work bonuses as savings is a very effective way to strengthen your emergency fund in a very short time. The average tax refund according to IRS for the year 2015 was around $2,900. If you even put aside half of it as savings, it will develop your financial savings quickly.
- Try to save as much money as possible by cutting extra expenses on a monthly basis. Put these savings in your emergency fund.
- Control your regular expenses. For example, look for a cell phone plan with lower costs. Add the saved money to the emergency fund, even if it is a small sum. Similarly, you can increase your car insurance deductible and use the savings to build your emergency funds.
- Use a savings account for your savings as it can allow you to withdraw your money whenever you need it. Putting it into stocks or other investments is risky as there is always a chance of losing it.
- Always hold on to the change. No matter how insignificant you think that coin is, keep it. With every dime you save, the balance will grow and soon you will have a dependable savings account.
- A great way to save money is through restructuring your mortgages. Try finding a cheaper mortgage and the savings you make from it can go to the emergency fund.
- Play safe and never use all your savings for a vacation, simply on a hunch. It is better to plan and live well in the long term, than to live in the moment and be miserable for the rest of the year.