Building up an emergency fund is a great way of securing your finances. Your emergency fund will help cover unexpected bills and expenses, but it can also be there should you be out of work, or your household income suffers a blow.
It can take time to build up an emergency fund, but it’s extremely useful to have once it’s there. You’ll need to be strict about what it’s used for, and will need to consider having other types of savings in place to cover more general expenses.
Learn more about building up your emergency fund and when to use it with the following tips.
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How to build your emergency fund
You can start building your emergency fund at any time. Many people start with a simple savings target in mind, like $1,000 and then take it from there. Ideally, you’ll want to calculate your expenses for a 3-6 month period, ensuring you could still live comfortably if your income were to take a sudden dip.
With a figure in mind, you can start building your emergency fund. You’ll need to work out what savings you’re comfortable putting away each month. You may find that you’re able to increase your savings by making some sacrifices or getting rid of some of your unnecessary expenses.
Increasing your emergency fund savings
Once you’ve reached your emergency fund target, why stop there? While you can feel confident knowing you’ve got several months of expenses saved up, who’s to say you can’t have a year or two years? Adding to your fund can give you greater financial security, and means you won’t have to worry about dipping into it when the time comes.
Other types of savings to have
Your emergency fund is just one type of savings, but it’s important to have others. You could need savings for short-term goals and personal savings, health savings, and even savings for your retirement.
Being able to have multiple savings pots will ensure you’re covered for all kinds of possibilities, and won’t have to worry about getting into debt to keep on top of any payments.
What should your emergency fund be used for?
Over time, your emergency fund will become a large savings pot you can rely on in an emergency. But what counts as an emergency. Setting some rules about what your savings can and can’t be used for will help make sure they don’t get used whenever you’re low on cash.
Some of the things to consider using your emergency fund include:
Being unable to work
If you’re unable to work due to losing your job, needing to care for someone or any other reason, that’s the key reason for having an emergency fund. Your savings should be able to keep you afloat, ensuring you’ve got enough to get by until you’re back on your feet.
But don’t forget, there could be some alternatives to using your emergency fund to help you cover a loss of earnings. If you’ve been in a car accident, a car accident attorney could help you get compensation for your missing income. You might also be able to rely on your insurance to cover you during this time.
Significant medical expenses
If you or someone in your family has serious medical issues, then your emergency fund can help cover the cost where your insurance can’t. Saving money when a family member is in hospital can be difficult, but having your savings already there can help you through this difficult time.
Emergency repairs to your home
Dealing with home repairs can put a lot of strain on your finances. If your home suffers damage due to a storm or hurricane, you could be left out of pocket easily. This is the type of situation where an emergency fund comes in handy, making sure you can afford the repairs without impacting the rest of your finances.
By having some strict criteria for your savings, you can feel confident knowing they won’t be touched until they’re really needed.
When it comes to your emergency fund, you need to consider your future finance and how much you want to save. Knowing you have that money there can take a lot of weight off your mind, and means you won’t have to struggle in the future. Having savings goals is a great way of motivating you to save, and could change your existing spending habits for good.
Are you ready to become a saver? Start saving for your emergency fund now.
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