Setting aside an emergency fund is a wise move. By doing that, you feel safe in case of an unexpected financial emergency. May it be the loss of a job, an unexpected medical bill, or a damaged phone. Any unplanned expense can hit you at your worst times.
So, it is crucial to save for a rainy day. If you’re not patient and think saving takes forever, you’ve come to the right place. We have gathered the five most applicable ways to help you build an emergency fund faster. And if you don’t know the ideal amount to save and where to keep your funds, we’ve got you covered.
Importance of Having an Emergency Fund
Having an emergency fund should be part of your solid financial plan. It gives you financial security and peace of mind when uncertain times come knocking at your door. When you know that you’ve reserved some money, nothing can shake you. It reduces the stress of unforeseen expenses and also helps you avoid debt.
Without an emergency fund plan, you’re forced to borrow money to cover the unexpected expense. That leaves you in debt. And even worse, you face high-interest rates. Hence, if you want to improve financial resilience, build an emergency fund. It will help you in the long run.
5 Tips to Build an Emergency Fund
Boost your emergency fund plan with the following simple tips:
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Set a Savings Goal
You can set your savings goal for the emergency fund based on what you earn every month. When setting your goal, you need to consider some factors. Also, set a motivating goal that you can meet. For instance, have a target of $3,000 saved for your emergencies every year. That means saving $250 per month or $125 if you receive your paycheck biweekly.
Since everyone’s income is different, play with the numbers to figure out a savings goal that will work for you. Other things to consider include your income stability, how much you spend, and whether you’ve dependents. Based on that, some people might need to save more or less in their emergency fund.
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Reduce your Monthly Expenses
By cutting down on how much you spend each month, you can attain your emergency fund goal faster. For example, if you’re subscribed to a streaming service and you barely use it, cancel it. And if you miss it at some point, you can re-subscribe when your money isn’t tight.
Another option is shifting to a less expensive rental house if your place is a big expense. It can help you save some money for your emergency fund. Shopping with a list is also an excellent way to cut costs if you stick to it. A list helps you resist the urge of impulse buying at the store and avoid unnecessary expenses.
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Make your Saving Automatic
One of the easiest ways to save for your emergency fund is to do it automatically. Set up recurring transfers from your bank’s checking account to your savings account. That way, you don’t have to do it yourself every month.
Also, you won’t be tempted to spend all your earnings on non-essentials. And if you want to check your balance, set up automatic notifications. You’ll be able to tell your saving progress every time there is a transfer.
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Choose Where to Keep Your Funds
If you’re wondering where to store your emergency fund, choose the safest option. Keep it in a place where you feel it is secure and easy to access. But don’t put it where you’ll be tempted to use it on non-emergencies. One great and safest place to put your money is in the bank if you’ve dedicated an account to that.
Another option is a prepaid card, where you load your emergency fund only. It is not connected to your bank, and it’s meant for one purpose. The other way to have your emergency fund is in cash. You can keep it in your home or give it to a trusted family member or friend. The problem with that is that your money could get destroyed, lost, or stolen.
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Increase your Money with Passive Income
You can boost your savings faster by earning more through passive income. If you have some free time, you can pick an online side hustle or use passive income apps. Some effortless streams that you can do include affiliate marketing and freelancing.
You can also share your unused internet to earn with little effort. These are just a few. The internet has many passive income streams for you to choose from. But select one that you’re most passionate about.
Bottom Line
Starting a savings plan for your emergency fund will need some discipline. You’ll also have to be more consistent if you want to yield great results. The above tips will help you step up your savings game for unexpected situations. Once you set up your savings goal, get creative. You can find some extra cash through passive income streams to grow your emergency fund.
