Life is too unpredictable. There are emergency bills, cars that need fixing, or worse: unemployment.
Having an emergency fund set aside from your usual savings can give you peace of mind. You need to set aside some funds from your weekly, bi-monthly, or monthly salary to help cover any large, unexpected expenses.
If you have an emergency fund set aside, this will help you avoid borrowing. You won’t need to rely on using your credit card, or get loans with high-interest, or worse borrow from family or friends. Since you have a safety net, you don’t need to worry about any obligations.
Are you ready to build your own emergency fund? Get your pen and paper ready. Here are 7 tips to help you set up your financial safety net.
- Make Saving Your Top Priority
Saving for your emergency fund should be on top of your priority list. An emergency can happen anytime and anywhere. Instead of saying “where did all my money go?” at the end of the month, spend your earnings wisely.
- Set A Budget
Set a fixed amount that will go to your emergency fund every payday and make sure to stay on top of it every month. Some people are using the rule of 50-20-20-10.
50 percent goes to your necessities like rent, food, and bills.
20 percent goes to your financial goals like investments and savings.
20 percent goes to your wants like entertainment.
10 percent goes to your emergency fund.
- Open A Savings Account
This is a very important step in building your own emergency fund. You need to keep your money safe, secured, and away from your own hands. Open a savings account in a different financial institution from the one that you regularly use. You want to make it a little out of sight, out of mind kind of thing, otherwise you may be tempted to borrow from it, and that defeats the purpose.
- Save Automatically
If possible, opt for an automatic savings option offered by your bank. This routes a predetermined amount from your pay into your savings account. Saving automatically saves you the step of having to move money around each time to add it to your emergency fund. It also safeguards the funds you’re setting aside for emergencies from unnecessary spending. One great app that can manage this for you is Plum. This clever app connects to your current account and analyses your incomings and outgoings. It analyses transactions and then identifies your regular income, rent, bills and daily spend. Using this and other factors like your available balance it calculates daily what amount it can safely put aside without affecting your daily life and moves it to your Plum saving account via direct debit every 4-5 days.
- Increase Your Earnings
If you want to save more, you need to increase your earnings and then you can set aside more money and build your emergency fund even faster. You can get a side hustle or have a passive income.
You can take a second job, learn a new skill and get some work done during the weekends. Look at your skills and consider how you can sell them or offer freelance work with your writing or marketing skills.
- Track Your Spending
By knowing how much you’re spending on everything you purchase, you’re more aware of the overall impact that it has on your budget. This will also allow you to adjust your budget accordingly. If you have a habit of being more conscious when making a purchase decision, it makes it harder for you to purchase something that you can’t justify. Again Plum can support you with friendly balance updates that shows where you are spending money. It also enables you to set daily or weekly balance updates and keep an eye on where your money goes. Easy to implement filters automatically track your spend by category, week and month. Plum will let you know without you having to wade through bank statements which saves you both time and effort. What’s more
Plum is FREE to sign up to and only takes two minutes.
- Save Your Tax Refund
Every year millions of people get a tax return and treat it as “free” money and spend it on a trip, or a luxury item. Saving that money is an easy and fast way to boost your emergency funds. When you’re filing your taxes, you may opt to have the refund deposited to your emergency funds account directly. Directing the extra cash into your emergency stash can help you reach your goal faster.
Building an emergency fund gives you a peace of mind that come any emergency, you can fully recover immediately. No matter how difficult the situation can be, you’re assured that you can always make a way out of it.