This is a guest post from Jack Reed. Jack Reed is a financial writer associated with Oak View Law Group. He offers advice on various debt related issues.
Imagine this. One fine day you meet with a dreadful accident. You are rushed to the hospital and the cost of your treatment is sky-high. You start to panic because you had never cared to save up for emergencies like this.
Have you ever faced anything similar to this? If yes, then it’s high time you start to consider building up an emergency fund. Unexpected need of cash can arise anytime and it’s wise to be always prepared for it.
How to go about building your emergency fund
- Start small: You do not need to start an emergency fund by depositing $10,000 into a savings account! Just start with something today, however small it is. The important thing is to get into the habit of contributing something regularly towards this fund.
- Isolate your emergency fund: Make your emergency fund your topmost priority. Use every penny to make your emergency fund healthier. Though traditional, this is the most successful way. After clearing your bills and other payments, set aside some money for your emergency fund account, generally equivalent to 3 to 6 month’s worth of expenses.
- Treat it as your bill: If it’s your payday, then you have to clear your bills before you can go for variable expenses like groceries, gas or entertainment. Well, how about adding your emergency fund to your list of bills? This would make it inviolable and contribute to your savings.
- Cut on your unnecessary expenses: Keep track of your expenditure. You might be spending on some not so necessary things like magazines, gadgets, video games etc. Cut back on all such expenses and transfer this money to your emergency fund.
- Sell off the trash: Once in a while get rid of the clutter. Make a list of all the items you own. You might want to get rid of some junks that are just taking up some space in your room. Now try to sell off these items. The money that you make can be used for your emergency fund. What’s more, your house looks tidier now!
- Keep a savings jar: Get a piggy bank or anything good enough to keep your money safely. At the end of the day, empty your purse of all the change and put it in your piggy bank. Gradually it will add up and you will save up a decent amount over a period of time.
- Be determined: Refrain from eating out or going for movies. The idea is to be determined. Try to take out the positive aspects in whatever you do. Not eating out can save you from the ill effects of junk food! Thinking on these lines will help you to stay focused.
- Most importantly, budget! : Your budget is a very important yardstick of your financial health. Keeping a tab on your expense and saving accordingly will help you to take charge of your finances. You need to budget for everything, even if it’s to build up your emergency fund. If you do not budget, you will not have a clear idea as to how much you should keep aside for your savings.
These are just some of the ways you can use to create your emergency fund. There are countless ways you can employ. The idea is to be innovative and put to use those tactics which suit your needs. This will smoothly sail you out of the rough patches in your life. Just be sure that you use this fund for true emergencies and not for that new Playstation you longed for!