How To Create an Emergency Fund and Why It’s Important
Creating an emergency fund isn’t difficult so learning how to start shouldn’t be either. Here are 4 amazing strategies and tips to building your nest egg for a rainy day.
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When an emergency occurs, you’ll be ready
We can’t predict the future, but we can sure prepare ourselves for it when a rainy day disrupts our parade. Having an emergency fund allows us to have a peace of mind and also creates financial confidence. As Grant Cardone says, assume control of all situations; so prepare now so you’ll be ready later.
#1. Create an Emergency Fund Goal
When you don’t know where to begin, start by creating an emergency fund goal first. Everyone’s goal will vary due to income and the amount of debt carried. A good minimum would be $1,000 – $2,000. An ideal and longer term amount would be $10,000+.
Did you know that more than 50% of Americans can’t afford an emergency bill of $500? There is something seriously wrong with this.
DO NOT be part of this statistic, create your emergency fund goal right now. Literally right now. Just set it, and work towards manifesting it. YOU CAN DO IT.
Before you begin to build your hefty nest, make sure you’re debt free first. Contributions will be so much easier this way. If you’re not debt free, set the goal for your small emergency fund and work on eliminating debt before you start paying yourself first.
#2. Pay Yourself First
When payday comes, be sure to pay yourself first (SAVE). We often tend to splurge and sometimes put away what’s left. You know exactly what I’m talking about.
Paying yourself first is the complete opposite; spend after you’ve put money away towards savings. Check your calendar and see what must go towards your expenses. Deduct it from your earnings and focus on saving the portion that will help you reach your goal.
Find which week works best for you out of the month to save. Once your expenses have been taken care of, pay yourself first, and enjoy what’s left. If most of your income covers your expenses be sure to check out my post on the 7 easy ways millennials can start earning more money to see how you can earn extra income.
Now that you have your target, you understand how much you must put into savings every month to meet your emergency fund goal. Do what you have to do in order to make this happen.
Here are some quick ways you can earn extra cash:
- Recycle
- Deliver food
- Offer ridesharing services
- Teach online with Fiverr
Make sure any additional cash is directed towards your money goals.
#3. Don’t Let Your Savings Collect Dust
This is where you take the first steps towards allowing your money to work for you. Put it in a high interest savings account.
Keep about a quarter of your savings in your personal savings account as liquid asset (money you can take out immediately). The more you put into your high interest savings account, the quicker you will reach your emergency fund goal through the amazing work of compound interest.
Here are some banks that pay you interest:
What about the stock market?
Invest in the stock market if a). you have no debt and b). you’ve built your hefty emergency fund worth 3-6 months of living expense.
Read: How To Invest in The Stock Market (Step by Step)
#4. Be Consistent
In other words, discipline yourself to save for your emergency fund.
Saving money might seem like a sacrifice at first but by being consistent you’re now creating a great habit and financially stable life. Your future self will thank you.
Remember the importance of having an emergency fund. The benefits of being prepared include:
- Having money in case of car issues
- To cover emergency hospital bills
- Security in case of a layoff
- Financial peace for your family
The best way to carry out your mission on building your emergency fund is to put money away every month no matter how good or bad it was.
Develop this winner habit and you’ll be meeting your goals in no time.
Keep yourself motivated
If you find yourself losing motivation remember why you started in the first place. Nothing good ever comes easy.
Look for motivational and inspirational accounts on Twitter or Instagram. I personally post motivational content from time to time on IG.
Don’t stop at nothing.
Here are some life changing accommodations to help you save money
1 – Don’t get into further debt. Wait on that awesome new car model that just came out. Perhaps work in your field a little longer before furthering your education. Remember, the more debt you have the harder it is to save.
2 – Start a side hustle. Use that additional income to add to your emergency fund and reach your target quicker. Don’t stop increasing your income.
3 – Live below your mean. This strategy will allow you to build your net worth so that you don’t live paycheck to paycheck.
Let me know in the comments below
Have you reached your emergency fund goal?
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