How to Manage Your Emergency Fund?
When it comes to curveballs life constantly throws at you, wouldn’t it be great to have a buffer between you and those curves that sleep well, helping you get a good night’s rest because they reduce a significant crisis to a trivial situation?
You can remain calm even if your AC breaks in mid-July because you had an emergency fund to fall back on!
What is an emergency fund?
An emergency fund is simply money that you’ve set aside for the many circumstances that life throws at you. It is a serious topic, like an auto collision, an emergency room visit, or a leaky roof. Purchasing two pairs of shoes during a Black Friday sale is not a good reason to withdraw money from your emergency fund. Having an emergency fund is an excellent idea, as you never know what might happen.
You will indeed be thankful when you lose your job or have a car accident by having the emergency money. Keep your wits about you. Without that safety net, life can fall on you and ruin everything.
What Should the Size of My Emergency Fund Be?
I recommend saving an “emergency fund” of ₹100000 as a “starter fund” if you have consumer debt. Once you have paid off your debt, it is time to increase the amount in your emergency fund by at least three to six months of your income. It is the method we use in the simple steps, and it has helped thousands of people who want to get out of debt and increase their wealth.
Also, read from our blogs how to save money from your salary.
When figuring out how much money to put in your emergency fund, the best rule of thumb is to keep your household and employment situation as stable as possible. The three months of expenses in your emergency fund is likely just fine if you’re in a two-income household or if you’ve had a steady job for several years. In this case, however, if you are a single-income family, self-employed, or receive a straight commission, you will be better off with a six-month emergency fund as you might lose your job and therefore be unable to pay your bills.
Furthermore, suppose anyone in your household has a chronic medical condition that requires frequent visits to the doctor or hospital. It would be best if you aimed to maintain an emergency fund of six months’ worth of living expenses in that case. It’s good to get prepared in case a major emergency occurs.
Where Should I Store My Money for Emergencies?
You should have an emergency fund that you can access quickly and easily. An online bank pays a higher interest rate, where you can still transfer money quickly and directly to your checking account. A primary goal is to make paying that doctor or mechanic stress-free and straightforward.
However, you mustn’t keep your emergency fund in an overly convenient location. To prevent ourselves from accessing our cash whenever we want, we keep ours at a different bank than our other accounts. Saving up for an emergency fund will provide you with a great deal of peace of mind. Here’s how to go about it:
1. Create and stick to a budget
A budget doesn’t dictate what you cannot do—it merely highlights the things you can accomplish. It means listing out all of your monthly income, as well as any other expenses you may have. You will be able to see how much money you have available to put toward your savings goal once you’ve made your budget. Once you are ready to take the next step, this will assist you.
2. Establish a monthly savings goal
You are setting aside how much money each month you want to continue growing your emergency fund. I know that depriving yourself of money to save for the future is difficult because I’m a natural spender. On the other hand, if you make a point of regularly depositing money into your savings account, you’ll be surprised by how quickly your savings grow. How much do you not know? Start from the beginning and go through the budget one more time.
3. Adjust your savings amount
Time goes on, and you may be able to save even more. Promotion at work means you now have more money to put into your savings. If you want to increase your savings amount, make sure to look over your budget for new ways to tighten your purse strings and to grow your total savings.
Easy Ways to Begin Your Emergency Fund
The easiest way to increase your emergency fund is to get rid of some of your things! Search through your garage or closets to see what you can find. Would you consider parting with anything? Selling unneeded but still precious items can help you build up significant cash reserves in the event of an emergency. Each bit helps, too! Don’t expect ₹50 here or ₹100 there to add up quickly.
That is an important word that we must not forget: work. Take on a part-time job if you have the time. Get into a new business venture. Consider getting a dog walking business or babysitting on the weekends while your full-time job isn’t at risk. These small decisions can help you gain extra money quickly.
Begin Building Your Emergency Fund Today
Close your eyes and imagine. Imagine not having to pay for anything other than your necessities for six months. Imagine what life would be like if you’d stop and think about it. Now that that safety net is in place, wouldn’t you be able to breathe a lot easier? Like insurance, an emergency fund costs you upfront but helps protect you in the event of a financial emergency.
Use this image as a reference to get started setting up your emergency fund. Pay off your debt, save money, and get started on a budget. Even when you are not making debt payments, your emergency fund multiplies. However, the best part is that It will provide you with a tremendous sense of security.
Should the roof leak or the washer break, you can expect to wonder, “What’s the big deal?” That is the security of knowing that you have a fully-funded emergency fund. When a crisis strikes, you can use it to make life easier.