From our forefathers, saving money is a practice that can bail you out during emergencies. Extra funds when you need them are point out to your financial wellbeing. Professionals often recommend having enough cash to cover additional expenses for three to six, but this is not always feasible.
However, that should not stop you from building emergency funds.
Emergency funds can cater to your basic needs for some times when you lose your job or during other emergencies. Thus, saving money should be part of your budget. However, savings can be intimidating, but give it a try and save as little as possible. You may also target a particular goal with your savings to encourage you.
Hence, here are easy ways you can build emergency funds.
List your monthly expenses
Whenever you want to build emergency funds, the first thing is to know how you have been spending your money. Thus, list your monthly expenses from the household loans to what you spend as gifts and charity, etc.
Then note the difference between the basic expenses and others. After that, reduce the expenses that are not providing your basic needs. With that, you will get the money to build your emergency funds.
When you are intentional about this process, you will know the expenses you cannot do without, and living on a budget allows you to control extravagant spending and save more money.
Set numerous small saving goals instead of a single big goal
You need to convince your brain that you are winning when you are saving for emergency funds, and one of the ways to do this is to have numerous achievable goals. Rather than thinking of funds big enough to cater for six months’ expenses, set a goal of an emergency fund to cater for a month’s expense. The idea is to have a plan that makes savings achievable.
When you reach the first goal, you will develop the motivation to achieve others, setting you on the path of winning. By the time you set some goals and see how the savings contribute to your wellbeing, savings becomes more effortless and a habit. Thus, build short-time achievable goals.
Start small but be consistent
Saving a relatively small amount from your daily or monthly income will not affect your lifestyle, and so, you will not have the feeling of losing money. A consistent but small amount does not affect your cash flow, which could have made you loath savings entirely.
When you sort your expenses and mark the items you can do without, use the funds to start your savings plan. Whether it is the fund you spend on coffee, cigarettes or a new pair of shoes, reduce the items you can do without.
It is better to start with as little as $5 and be consistent with it than to start with $100, which may affect your cash flow and makes you hate savings after a while. The key is to make savings a habit and not a one-time thing.
Automate your savings
Our forefathers saved money in pots, under carpets, and other hidden places in the house; thanks to the banking system, you don’t need all this. The easiest way to save your money is not to even touch it, unlike the traditional savings that you will have to save your money yourself.
Thus, automating your savings ease the process as you can’t deliberate whether to spend it or not.
Most employers provide direct deposit and may even deposit it in more than one account. You may also create a separate account to keep your emergency funds and automate the savings through your bank or your employer.
When you automate savings for emergency funds with a long-time plan, use a savings account that you cannot easily access and cannot check the balance continuously. Automating your savings allows you to forget it and continue increasing the emergency funds.
Don’t increase your monthly spending
Once you automate your savings, another devil to tackle is that you have financial freedom and can spend recklessly. For instance, if what you used to spend weekly at parties is what you are saving, and you still find a way to go to a party once a month and spend, you are not saving at all.
Another one is if you have some extra buck after the month, it may be that your saving is low and may need to increase your savings and not the spending. Also, having an extra buck to spend will ensure you don’t think of having a new credit card.
You shouldn’t cut all your hobbies because of building emergency funds as you may relapse and stop saving entirely. Thus, minimizing your reckless spending is the goal of financial wellbeing.
Get a health insurance plan, and insure your valuables
Part of your emergency plan is to have a good insurance scheme, as most emergencies are medical-related, i.e., falling sick or having an accident. Thus, have health insurance that caters to your emergency medical conditions, and you will not need to create a separate emergency fund for it.
Additionally, insure your valuables as they may cost more than your entire emergency fund when a difficulty ensues. Insure your cars, house, your business, and other valuables. When insurance covers those valuables, you can direct your emergency fund to your financial development and breakthrough or for your retirement plan.
Reduce your subscriptions
When you have subscriptions to different needs like app services, gym memberships, or magazines, your income is deducted automatically. These automated subscriptions quickly add up and contribute to excessive spending.
Get the list of your subscription and remove the ones you don’t frequently use. You may try working out at home and jog around your neighborhood than pay for the monthly gym service. When you consider all your automated subscriptions, you will see many services to eliminate and channel the funds to build your emergency funds.
This process may look tedious, but remember that you need the discipline to save funds.
Do not over-save on your emergency funds
We encourage you not to devote all your savings to emergency funds, especially when the target is reached. Your emergency fund is the cash you want to access quickly when an emergency arises, which means you might be saving it in a savings account with a low interest rate.
As such, stop funding your emergency account once you reach the target so that you can channel your newfound habit to other goals.
You can start depositing your fund in a fixed deposit account to earn higher interest. You may use your retirement accounts for this. In the long run, you will enjoy the benefits.
Stashing your windfalls, saving beyond your goal, cutting your cable cord, and bringing your lunch to work instead of eating out are other beneficial ways to build your emergency funds. You don’t have to subscribe to all TV channels to reduce your cable cost and have extra funds to save.
Building your emergency funds is not very difficult but requires some discipline to reduce the services you enjoy but cost your fortune. However, focus on the goal and the advantages you will derive from saving for the emergency days. After a while, you will feel the win you have scored from savings.
You might also like: 6 Hacks That Will Save You a Ton of Cash