Life can be very unpredictable, and as such, an emergency fund should be a critical part of your finances. In fact,Forbes ranks it among your top three priorities when it comes to savings, as it’s a pool of money set aside with the sole purpose of acting as your safety net when unexpected financial dilemmas occur. While an emergency fund will vary from person to person, most experts say that your emergency fund should cover three to six months’ worth of realistic living expenses.
How can I set up an emergency fund?
Because emergencies can happen at any time, you need to put your emergency fund in a safe and accessible place. Consider keeping your emergency fund in a high-yield savings account, so you can have almost instant access to your funds when the need arises. Aside from growing your money through high-interest rates, Business Insider points out that having a high-yield savings account will help you curb impulse spending, making it easier for you to set money aside for your emergency fund.
To build your emergency fund, here are other sure-fire tips to help you out:
- Set a monthly goal. To make saving easier, you need to establish the amount you will set aside each month. Ideally, you’ll set up this amount for automatic transfer to your savings account. By automating the process, you are far more likely to stick to your monthly goal.
- Pay off your debt. You need to start being aggressive in paying off your debts, because the longer you have credit card debts, student loans, or car repayments to worry about, the harder it becomes to make progress on your financial goals. Cutting back on your monthly debt repayments by settling them will free up additional money in your budget that you can allocate towards your emergency fund.
- Cut expenses. Track your monthly spending and evaluate which parts you can trim. There are several easy ways to cut your expenses, like limiting the number of times you eat out each month and canceling subscriptions to services you rarely use.
- Continue building. Lastly, just because you’ve saved up your three to six months’ worth of expenses doesn’t mean you should just stop putting money aside for your emergency fund. Your circumstances change through different phases in your life, and your monthly expenses might increase as a result. You need to account for these changes and continue building your emergency fund as needed.
What do I do if there’s an emergency and I don’t have an emergency fund?
If an emergency occurs and you don’t have an emergency fund set up just yet, don’t panic.
Here are a few ways to get or make money fast:
- Sell something. As previously shared in ‘Need Money in an Emergency? Here’s What to Do’, selling things you no longer use or want is a great way to get money for emergencies. Take a look around your house and see what items you can sell. You can ask your friends and family if they’re interested in buying them, or you can put them up for sale on Craigslist or Facebook Marketplace.
- Collect debt. If anyone owes you money, now is the best time to collect. It might not be easy to do this quickly, so you can try offering a discount to the person who owes you if he or she can pay you immediately. You can also accept valuable items that you can sell instead of getting cash as payment.
- Get a loan. One of the best ways to raise money for big emergencies is getting a loan. And if you have a car, you can get a loan based on this. 800LoanMart explains a title loan is a fast and simple way that only requires a vehicle title to be used as collateral, along with proof of income as well as filling out the forms provided by the lender. This type of loan is perfect for emergency situations, especially when time is of the essence.
- Crowdfund. There are several crowdfunding sites such as GoFundMe, YouCaring, and Indiegogo, where you can set up a page detailing your emergency to raise money. Just be mindful of any hidden charges or fees when it comes to these particular crowdfunding sites.