What Is An Emergency Fund?
EMERGENCY FUND – An emergency fund is a stash of money set aside to cover the financial surprises life throws your way
Saving for an emergency can seem like a daunting and impossible task. Add in the uncertainty of having to predict the expenses of a disaster or misfortunate event and there’s no wonder people have a hard time getting started. As with any precautionary measure you’ll want to set aside these funds prior to needing them. The easiest way to set a benchmark for your fund will be to use your total monthly expenses as a multiple. It’s best to aim for three – six times that amount when saving.
Ways To Save
Paying yourself first is the single most important factor in generating an emergency fund and moreover an investment fund. People have a hard time saving because they view it as a luxury not a necessity. The expression pay yourself first works to curb this mindset and lead people to invest in their future over anyone else’s. The most common way to do this is to set up a savings account then automate transfers from your primary account.
If your target is three months of expenses, the best tactic would be to divide that by twelve monthly payments and work to have that set aside over the course of a year. Small payments over time help add to your buffer without upsetting the balance of your finances. Another option to consider if you can’t commit to setting aside a fixed number like $300 a month, would be taking 10% out from each check may be a better course of action. The frequency matters much more than the amount as it will compound over time.
Starting A Side Hustle
Creating a secondary source of income will also give your savings a boost if you minimize your overhead costs and start small. Generating additional income on the side through a small business provides two pots to pull from when building your reserves and most importantly it opens you up for more earning potential as your business grows in the long run. Something as simple as flipping garage sale purchases or designing resumes can be done with little or no start up money. Don’t take on unnecessary risk to start a savings.