Do you ever feel like you fix one financial emergency just in time for another one to arrive? Call it unlucky, but that’s just the way life is sometimes.
A well-stocked savings account can help you flit from one unexpected bill to the next without borrowing money. But you probably already know this.
What you might not know is how to build up your fund so that it’s ready for the next financial curveball. If your savings are looking
How Much Money Should You Set Aside?
Before you can start boosting your savings, it’s a good idea to know how much you need to save. Having a goal can help you focus on your task and keep you motivated. But the trick is to be specific — simply saying you need to save more isn’t enough.
As a general rule of thumb, an emergency fund should be able to cover three to six months’ worth of expenses. This means you’d be able to pay your bills and have some fun, even if something stopped you from earning a paycheck for half a year.
That being said, there’s no magic number. It all depends on your monthly budget, so you’ll have to spend time tracking your expenses.
It also depends on your risk tolerance. Some financial pundits suggest upping your fund to hold as much as a years’ worth of expenses. They recommend this conservative goal in case you run into trouble after losing your job. It gives you as much as a year to find another one.
How Do You Do it?
There’s no emergency fund without a budget. This financial spending plan will help you know how much you can afford to set aside in savings each month.
Find More Cash
The trick is to comb through your expenses for bills, purchases, or experiences you don’t need to make. Things like parking fines, new tech, and vacations are prime territory for savings. If you can limit how much you spend here, you’ll free up cash without having to earn more.
Once you cut out expenses, the newly freed money should go immediately into savings. If you have trouble remembering doing this chore, make it automatic.
Don’t Touch it
You’ll want to avoid dipping into it for non-emergencies, as this may leave you unprepared when disaster strikes.
If you’re struggling to ignore the fact you have all this cash, make it harder for you access it. Move it to a separate savings account at a different bank than your usual checking account. The added trouble of having to sign into a different account may be enough of an obstacle to stop you.
Be Prepared for Being Unprepared
Let’s say your emergency arrives while you’re still getting your fund off the ground. While this may complicate things, you aren’t out of luck. You may be able to get a personal line of credit to help.
But before you apply for anything, it’s important you know how to use a personal line of credit to the best of your abilities. Making sure you use a personal line of credit only for emergencies will keep your balance low, so you’ll find it easier to pay off your bills in time.
You Will Be the Head Honcho
No emergency fund springs fully formed overnight. It’s the product of time and effort, as you cut out expenses to put more of your cash towards savings and wait for it to grow.
Remember this if you’re ever feeling discouraged about your finances. It will be slow going, but eventually, your hard work will pay off.