What is an emergency fund?
An emergency fund is a cash reserve that you keep in a safe place and use only for any unexpected financial emergencies. It can be a separate account, such as checking or savings accounts so you could have a quick access in emergency situations.
The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to use high interest debt, such as payday loan, cash advances, and credit cards, as last resorts.
It might be hard for some people to create an emergency fund especially if they have a tight budget. But the truth is, it’s not that hard to save for this fund. Here are some tips on how you can start creating an emergency fund:
1. Start small. Maybe you can start at $50 a month. A little goes a long way especially when it comes to savings. Just start. It will slowly grow and you will be glad to see at least a little in your savings, and will soon be motivate to try to save more.
2. Spend less. Focus on basic needs not wants. Don’t buy unnecessary things. You have to spend less in order to save money. Instead of subscribing for a monthly issue of magazine, why not save it and put it in your emergency fund? Cut out your luxuries and just save the allotted amount for your future needs.
3. Set up automatic deposits. Make saving easy by scheduling automatic deposits to your emergency fund. You can set up an online savings account that would automatically deduct an amount every payday.
4. Prioritize your emergency fund. Treat your fund as one of the regular bills you’ve got to pay, an obligation you have to fulfill. Set a due date for it, such as your payday, so you will not forget to “pay” your fund.
5. Make extra income. Take your skills and market them as a freelancer, or get a second job on the side. You can also start a small business at home. Take the extra income and bank it. This is one of my strategies, and it works great.
6. Set a time frame to complete the fund. You can set a possible time frame to reach you goal – for example, to finish your emergency fund in a year. That will be possible if you will believe in yourself.
7. Sell some stuff. Make use of eBay, Craigslist, or other classifieds services to sell things of value around your house. Is that DVD collection you never watch really more important that your financial security?
With a little effort, you can start saving and prepare not just yourself, but your entire family for future emergency situations.
