As Murphy’s Law dictates, a financial emergency will almost always occur at times when you have absolutely no cash. This may force some to rack up a depressing amount of debt with sky-high interest rates or run to friends and family for assistance.
An emergency fund removes the panic that comes with an unexpected expense. It can also put you in the position where you able to financially protect yourself despite any setbacks you may encounter.
Overestimating your financial security and opting for short-term purchasing power could be dangerous and there are certain expenses you can never plan for which include;
- Loss of employment
- A major health expense
- Possible funeral costs
- Unplanned pregnancy
- Sudden home repairs
- Rise in the cost of living
Have the hairs on the back of your neck sprung up suddenly? We thought so.
Take a look at the six ways you can set-up an emergency fund
Take it slow
Don’t rush things, be realistic about what you can afford to save. While ideally you would want to stash a chunk of your salary for about a year, without touching it. They key to saving is not necessary how much you save but more importantly how consistently you save.
So calculate a budget that includes all you expenses. Then set aside an amount regardless of the size and stick to the plan.
Automate your savings
Treat your emergency fund as if it’s a bill with a self imposed deadline. One way to do this is by automating your monthly payments to your emergency fund.
Remember there is no limit to the number of bank accounts you may open, so opening up an emergency fund should be a quick and timeless task.
Save your change
Pay with notes then put the change in your savings account. While your emergency fund continues to grow, get into the habit of collecting all your change. You should view your emergency fund as the bright pink piggy bank you had as a child except that, depending on the type of bank account you choose, could continue to grow and appreciate. This just makes the prospect of an emergency fund an even more exciting adventure to start.
Try make weekly payments into your savings account. Handing a box full of coins to the bank teller may not seem like the most flattering task to undertake, but if you do so consistently, you may not even need to increase the automated amounts you pay into your emergency fund.
Save it, don't spend it
When you receive cash back from certain ventures such as a tax return, your neighbour paying you for mowing his lawn, even if you won a few bucks whilst gambling, try to save all additional incomes for that elusive, yet ever present, rainy day.
There are always ways to cut down on your daily expenses. Whether you opt to take Public Transport instead of your car, switch to a cheaper insurance policy or bring lunch from home instead of buying at work, there are plenty ways where you can save.
Re-evaluating your expenses to try and identify ways to pay less could just have you smiling and thanking your lucky stars that you did so when life gets turned upside down.