Establishing an emergency savings fund may be one of the most important steps that you take to prepare for unexpected problems. For many families on a strict budget, putting money into savings can seem like a luxury that is out of their reach.
On the contrary, families with limited income may benefit the most from having an emergency fund because of the leeway it allows for the unexpected. It is impossible to predict health scares, natural disasters and so many other life events. Putting aside money for these times of real need is the best way to provide your family with some security in times of upheaval. How can you establish an emergency savings fund? Although everyone’s saving goals and incoming funds are unique, following a few basic steps can help anyone establish an emergency savings account for the unexpected. If you are about to set up an emergency account, then consider following these steps to reach your savings objectives:
Layout Your Current Household Finances
Before you can start saving for an emergency fund, you will need to have a clear picture of your finances. If you share costs with your partner, then his or her finances should be considered as well. If you already laid out your finances to submit tax information or create a family budget, then you can take out that information and use it now. If you are starting from scratch, then you will want to gather as many bills and receipts from the different expenses that your family must regularly pay.
Compare this to the combined income you receive on a weekly or monthly basis, keeping in mind how much money you currently have in savings. Once you have all of this information, you will be able to make a clear decision on both how much money your family needs to keep in savings to feel secure and how you can go about reaching that financial goal.
Identify an Emergency Savings Goal
The monetary amount of your emergency savings goal will depend completely on your family situation and needs. At this point, you will want to look closely at the information gathered in the previous step to come to a realistic estimate of how much your family would need to survive anywhere from three to six months with no income. Oftentimes, experts suggest saving for six months if in a single-family home and three months if in a household with multiple earners who could theoretically help during times of economic need. The first question to ask yourself is how much money your family needs to save to survive a month without facing significant problems, such as costs associated with housing, transportation, healthcare, food and more. You may want to err on the more expensive side of estimations at this point to give yourself a bit of a cushion for unexpected costs. Take this monthly estimate and multiply it by three or six months for a decent estimate of how much you should try to put into your emergency savings fund.
Make a Realistic Savings Plan and Budget
Now that you have a number to work towards, you need to figure out how to get there. Again, the best strategy for you will depend on your specific financial situation, costs and goals. There are many ways you can start planning for an emergency fund with specific and measurable financial objectives. You may choose to put away a certain amount or percentage of your income every week or month regardless of how much you earn or spend. Others prefer to have all of the purchases be rounded up with the excess cost going directly into a designated emergency savings fund or utilize other easy ways to save money every day. Choose whichever strategy works best for you and your family. Once you have decided how you will begin saving money, do a few more calculations to figure out how far you will be towards your financial objectives after one month, three months, six months and so on. How long will it take you to reach your emergency savings fund goal? Is that a realistic timeline or should you alter how much or the method of which you deposit funds into the account? Answer these questions and design your individual budget for your emergency savings fund.
Designate a Specific Account for Emergency Funds
Once you have done the hard part of figuring out both your financial goals and how to achieve them, you will want to make it as easy as possible to follow through with your self-imposed economic limitations and aims. For most people, the best way to do this is to designate a separate account solely for emergency savings funds that you can easily access. The accessibility is important because, as an emergency fund, you may have to withdraw the money immediately without prior notice. For example, if your funds are in stocks and bonds,then you will most likely have to wait for a period of time before being able to withdraw money. As mentioned above, you can further automate meeting your emergency savings goals by having a certain amount of percentage of money automatically transferred from your general bank account into your savings account. Many people prefer to automate everything so that they do not accidentally spend the money or forget to make a regular deposit.
Follow Through on Your Goals
It is easy to forget how important an emergency savings fund is when everything is going well and there is a large purchase you would like to make. However, the only way you will be able to meet your emergency saving fund goals is by following through with your plan. You spent time considering your entire financial picture and adapting it to meet your emergency fund goals, do not let all of that work go to waste. Post your goals or strategy onto your refrigerator to remind you on a daily basis of why you are saving away for an emergency and to reinforce developing better money habits. It may also help to talk to your friends or family about your financial goals so that they can support you and maybe even help hold you accountable for meeting your goals. Remember that an emergency fund is an investment in the stability of your future, making it worth your effort.
Use Some Money-Saving Hacks to Boost Your Emergency Fund Deposits
There are several ways you can increase the amount you regularly put into your emergency savings account to help reach your financial goals faster. You can set aside your change from paying with cash into a jar that you empty into your savings account when full. You can clean up your checking account to see if you spent less than intended in certain budget categories, such as opting for store-brand products to reduce food costs.This will allow you to deposit that “extra” amount into your emergency savings fund. Consider getting a second job or a gig of some sort. Millions of people across the world supplement their primary income with other resources. You can join their ranks and deposit all of the earnings from your second job directly into your emergency savings fund. If it is tax-filing time, then you could potentially save your tax refund for the emergency savings fund if you haven’t already designated the funds for other expenses. You can even ask that your refund be directly deposited into your emergency fund so that you are never tempted to spend a penny of it. You can also look into apps that help you save money by issuing coupons or simply tracking your finances.
Once you have been contributing to your emergency savings fund for a few months, it is a good idea to take another look at your finances, your budget and your resultant savings. Were you able to meet your savings goals? If not, then can you identify which area you underestimated? You can take this opportunity to adjust your budget and maybe even your goals to incorporate the money-saving lessons you have learned since initially making the plan. There is no right or wrong way to strategize saving for your emergency fund, as long as you get closer to your financial end goals as time goes on.