You just never know what is around the corner. Life is full of surprises and you can end up with an unexpected bill for a variety of reasons. To cover for these things it is a good idea to have an emergency savings fund that you can use for the unexpected.
An Emergency Fund Defined
In simple terms an emergency fund is an amount of money you have saved to take care of any unexpected things that you have to pay for. It can be very stressful for you when things happen that you are not expecting, let alone expensive.
Examples of unexpected costly surprises could be a medical bill or some emergency dental work that you or one of your family members needs. Things can go wrong in your home too and you may need to pay for an unexpected repair. What do you do if your car suddenly breaks down? Your emergency fund can take care of all of these things.
Why an Emergency Fund is a priority for you
Unexpected events in life can just be a blip for you if you have an emergency fund to cover them. Without an emergency fund, these unexpected payments can be a disaster for your financial health.
The alternative to having an emergency fund to take care of unexpected payments is that you will need to go to a lender and borrow money. This means debt and interest payments depending on your credit score. To avoid the need to borrow and increase your debt, put some money aside for your emergency fund after you have made all of your regular payments each month.
How big should your Emergency Fund be?
A good rule of thumb is to have an emergency fund that will cover between 3 and 6 months of your expenses. So it is going to depend on the lifestyle you have, your income level, the amount of your monthly expenses, the number of dependents you have and so on.
The important thing is that you have an emergency fund and contribute to it regularly. Even having a few hundred dollars saved can make all of the difference. Sometimes you will see experts recommending that your emergency fund should have a year’s worth of income in it.
What is the best way to save for your Emergency Fund?
One of the best things that you can do to save for your emergency fund is to cut down on your existing expenditure. Even the smallest of cuts can make a significant difference. An area where you can definitely make cuts is dining out. If you are going to miss the social interaction here then throw Pot Luck parties occasionally.
Do you take the family out to the movie theater regularly? As an alternative to doing this you can subscribe to a streaming movie service and enjoy the experience at home with your big screen TV and some popcorn you make yourself.
Buy some soft drinks from the supermarket and get some chips or other treats there for much less than you would pay at a movie theater. Good streaming services tend to have all of the latest movies so you can save a great deal of money with a home movie experience.
Do you visit the coffee shop regularly for that fancy brew? This can be a really expensive pastime each month. Decide to experiment with coffee at home. You can create your own flavors by adding dried orange peel for example.
You will pay more for your snacks at the gas station than you will at the supermarket so shop wisely. Write down all of the treats that your family likes and get them all in the grocery store. You can save a lot by planning ahead.
Make a Budget List
You can use a simple spreadsheet for your monthly budget. Be sure to record everything that you are spending right now and then see where you can cut back. Make it fun and involve your whole family.
Setup a savings account with your local credit union branch. They are a good choice as they tend to have a number of saving incentives available. Decide on the same day each week (e.g. Saturday) to go to the branch and deposit what you have saved that week.
Record your savings achievements so that you can look back over for them for more inspiration. When you take control of your money you will find this very empowering. It is a really great feeling to see your emergency savings fund grow over time. Get started today and have fun doing it.
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