A back-up stash, a nest egg, money set aside for a rainy day — an emergency fund goes by many names! It really doesn’t matter what you call it, but it does matter if you have one or not. A well-funded emergency reserve can save you from a serious financial crisis (and emotional meltdown) in the future.
Having an emergency fund is always a smart idea, especially because the economy can be rather predictable. With the ever-present risk of recessions, economic downturns, and unexpected financial crises, you never know when you’ll need some extra money to help you or your business get back on its feet. An emergency fund can provide you with peace-of-mind and financial safety, two things that can keep you feeling motivated and sane!
Here are five tips that can push you in the right direction when it comes to creating a substantial emergency fund:
Calculate your monthly expenses
Determining just how much money you should keep in your emergency fund can be tricky. Think Should a financial challenge occur, you’ll want to have enough money to cover your housing, bills, transportation, usual business expenses, and groceries for at least three months. This lump sum can really be a lifesaver should a financial crisis occur.
Cut unnecessary costs
Unfortunately, this means you might have to cut down on the amount of food you order from a delivery app every week. Hot tip: going to pick up your meal can save you from spending serious dollars on delivery fees and a tip. Think about the amount of money you spend on food, socializing, and impulse purchases. If you spend $160 dollars per week on meals out with friends, try to cut that in half and put the saved money into your emergency fund — it will add up quickly!
Creating a budget can also help you cut unnecessary costs, and is a great way to keep track of your spending habits.
Start small
Don’t feel discouraged if you can only afford to set aside $10 per week — we promise that it will add up! Once your income increases or setting aside $10 starts to feel too manageable, consider bumping your emergency fund contributions up to $15 or $20. If you happen to get lucky and come into money via birthday gifts or extra freelance work, try to put a portion of the money into your emergency fund and use the rest to treat yourself. While saving money is important, it’s also crucial that you prioritize your well-being and continue to do things that bring you joy, even if they cost money.
Talk to a financial advisor
The staff at your bank can be a superb resource when it comes to creating an emergency fund. They can also put your money in a savings account that has a high interest rate, so that your money makes money while it sits in your account. But make sure the funds can be easily accessed in the case of an emergency as some high-interest accounts lock funds for a certain period of time.
Knowledgeable banking staff can also help you sign up for auto-payments that go directly into your savings account. If you have a hard time not spending the money you earn, auto-payments can ensure that you’re still saving.
Only take money out of the account in an emergency
With a large lump sum of money in your account, it’s easy to become tempted, but spending it on concert tickets or a new pair of jeans won’t be beneficial in the long term. Frivolous spending doesn’t lead to personal growth or financial success. If you do have to withdraw funds from your emergency account in the event of a crisis, be sure to repay your withdrawal as soon as you can. As they say, “when it rains, it pours”, so having money in your safety fund will reduce stress and provide peace-of-mind should another emergency occur.
For self-care tips and to learn more about the ways you can achieve financial success, check out the resources on our website.
 in the future. ){kind=link}