No matter what your financial situation is, an emergency fund is an essential piece to any good monetary puzzle. The purpose of such a stash of cash is for 3 months of living expenses to tide you over in an unfortunate event, like a loss of job. But it doesn’t end there; such monies could easily be used for emergency home or auto repairs, or any bill that comes up unexpectedly.
The important part of this scenario is that you put money aside consistently and only tap into it when a true emergency strikes- not because you’re a little short this month and you can’t get your hair done, or the golf clubs that you’ve had your eye on are now on sale.
How much fund is enough
The “experts” point to 3 months salary. Will this be enough, or do you think that’s a ridiculous amount to save up? The most important point is that you have something, any amount that you can, put into such a separate, interest bearing account, even if it’s just $40 per month- and that’s only $10 a week, less than $2 per day. In one year after 12 monthly deposits, you will have $480 plus interest in your account of choice. Even though that might not pay your mortgage when you’re out of work, it should be enough (or at least close) to fix the brakes on your car. Everything adds up and makes a difference.
How to fund the account
If you‘re the type to set a monthly budget, add in a pre-designated amount for your emergency fund and stick to it . By treating your emergency fund like a monthly expense, you’ll get into the habit of paying it even after you’ve reached a comfortable amount in the fund. At this point, savings has turned from a negative burden into a positive habit- an addiction to watching your money grow into something more than just a few dollars that you’ve managed to tuck away- it’s now growing into your future before your very eyes.
If you can’t seem to put this money away on your own, you might opt to have a portion of your paycheck directly deposited into a separate account, acting as though you never had the cash to begin with. The trick to this is having access to the funds in the event of an emergency, but not so accessible that you’ll be tempted to withdraw the funds at the drop of a hat.
Don’t starve yourself- financially speaking that is-
Saving money doesn’t have to mean that you can’t spend any of your money, it just means that you need to keep tabs on how much you’re spending and where it’s going. Give yourself an allowance each week to spend- bit once it’s gone, there simply isn’t any more until next week- and whatever you do, don’t tap into your recently growing emergency fund- unless, of course, there’s a real financial emergency.
