Unfortunately, humans don’t have the capacity (as of yet) to predict the future, so until that time comes, we must prepare for the unexpected.
Making sure to put aside money for an emergency fund is one of the wisest financial decisions one could make. Natural disasters, car accidents, medical emergencies and job losses are just a few scenarios that can set your funds back by a considerable amount.
Don’t let surprise circumstances leave you in financial ruin. Check out our tips below on how to grow your emergency fund.
1. Set a Goal
Without a goal in mind, you decrease the likelihood of actually building a fund. The general rule of thumb is to set aside 6 months’ worth of living expenses. Depending on your income and bill obligations, this may take a while to build up, but even starting with a small amount will help you get on the right track of hitting your target goal.
2. Get a separate account
Separating your funds helps you stay focused as well as diminishes confusion between what’s emergency savings and what’s not. It helps to set up an account separate from your regular checking to reduce temptations of dipping into the fund for non-emergency spending.
3. Set up a recurring transfer
Treating your savings like another bill is one of the best ways to make sure you’re stashing away money every month. When you set up your monthly budget, plan how much you want to take out for your savings and set up an automatic transfer into your savings account on the same day every month like any other bill payment. You may even decide to setup a direct deposit from your paycheck so that you never see the money that’s being taken out.
4. Determine rules for spending
Depending on circumstances, you may find yourself contemplating what exactly qualifies as an emergency and dipping into your savings for things you justify as such. This is why it’s wise to set up restrictions beforehand. Ask yourself, what types of things constitute an unexpected emergency, and what kinds of things don’t; lay the ground rules and then stick to them!
5. Start somewhere
One of the hardest parts of any goal is getting started. Building a 6-month emergency fund won’t happen overnight; it takes time. Start small and over time as more money frees up increase the amount you save. For instance, if you were making a $45 credit card payment every month and you paid off the balance, add that $45 payment to your monthly savings transfer.
If you have a meager savings that you’d like to grow, or you have no savings whatsoever, there’s no better time than the present to start actively preparing for the unexpected. Your bank account will thank you later.