This is a sponsored post. All opinions are my own.
Emergencies are planned for, but you can be prepared. Be sure to get the deets on how to create an emergency fund.
When I was just out of college, I found myself in a tight spot. I had just left a stable job for a gig at a start-up company that after two weeks failed to start up. I had rent, a car payment, and utilities to pay. And, I had no spare cash. I was as frugal as possible, but ended up racking up a few thousand dollars in debt. Over the next few years, I worked hard, keeping multiple jobs at a time, and was able to pay off everything I owed. But man, oh man, was it stressful.
It wasn’t fun at the time, but I think it was one of the best lessons I’ve learned. It was a scary, but thank goodness I was only responsible for myself. Now with a mortgage and three children? There’s a lot more at stake.
With that in mind, I thought this article from an insurance agent on creating an Emergency Fund is particularly helpful for those of us that need a few pointers on how to set aside money for when you least expect to need it.
If you were to lose your job today with no warning and no prospects for a new job on the horizon, would you be financially okay? Many people would be unable to answer yes to this question. This is why it is so important to have an emergency fund.
What Is an Emergency Fund?
An emergency fund is money that is saved to use in case something comes up to threaten your finances. This money is saved over time and built up to a predetermined amount. It may be kept in a special bank account or in cash in a safe. It can be used to pay for living expenses or an unexpected expense and is designed to keep you from going into financial turmoil.
Step One: Determine How Much to Save
When you decide to start an emergency fund, the first thing you need to do is decide how much you want to keep in the fund. Ideally, you should have enough in there to cover three months of your regular expenses. However, when you are just starting this is a very lofty goal. It is much better to determine how much money you would need to keep things going if one unexpected event occurred.
This can vary greatly for each person. Some people like to save back $500 to cover insurance deductibles or cover things like a doctor’s bill or car repair. Others want one month’s worth of expenses. You can change it later once you get in the habit of saving.
Step Two: Find Ways to Save
Most often the people who need an emergency fund the most are those who have the hardest time saving money. You can save money, though. It just takes small changes in how you spend it.
If you use cash, start with saving the change. Whenever you break a large bill, keep all the coins and the $1 and $5 bills to put in your savings. If you rely on debit cards or checks, you can still save. Just transfer any money left in your account at the end of the pay period to your emergency fund.
When tax time comes around, many people get excited because they get a huge refund. It is common to use that money to splurge . However, if you could save just a percentage of that money, it would make a great start to your emergency fund.
The biggest thing you can do is to cut your expenses. Start with bills that can be changed fairly easily, like insurance. Call your insurance agent to see if you can get your rates lowered. Then you can start working on cutting the things you buy, like expensive coffee drinks and fast food meals.
One Word of Advice
The best way to ensure that you save money and build your emergency fund is to treat it like a bill. Put it in your budget that you must put this amount in your emergency each pay. When you do that, it makes it much easier to do it.
Creating an emergency fund can give you a peace of mind. You will feel more relaxed because you know you have that money to fall back on should something unexpected happen. You just have to start saving and commit to it, and in no time, you will have your own emergency fund.
Do you have an emergency fund? What tips do you have for setting aside money for this purpose each month?