Your First Step to Financial Security: The Emergency Fund

Your Personal Safety Net

Emergencies do not come at convenient times. Having a broken phone, a flat tire, or an unexpected medical expense will upset your plans.

This is why having an emergency fund is so crucial. An emergency fund is a safety net that will give you breathing space when unexpected events occur, preventing you from getting deeper in debt.

Emergency funds are basically just setting aside funds for when you have a real emergency. This doesn’t include trips or purchasing electronics, but it’s when you have expenses that you have to pay, such as when your pipes bust. A few hundred dollars will go a long way.

Personal finance advisors recommend stashing three to six months’ worth of expenses, but this is a target amount to work toward. You can start small if you wish. Having one month’s worth of expenses in an emergency fund will give you a foundation of security to build upon.

By saving regularly, you will get to experience that smaller amounts of money will actually sum up sooner than you thought. Generally, it is consistency that counts, not perfection.

How to Build One

Start with smaller, more realistic goals. This will make saving a reality rather than a challenge. Having a smaller goal for your first milestone will make it much simpler to work your way up when you're ready.

Automating your savings is one of the easiest ways to get in a routine. You need to set an auto-transfer system to your emergency fund after every pay. Once it is an automated system, it is not even a thought in your mind, and it is effortless.

You should keep your emergency fund in a separate savings account. This will prevent you from dipping into your emergency fund when you need cash for normal purposes. You should choose an account that is easily accessible when you need it in an emergency situation but is not attached to your debit card.

If you pay off debts, do not completely stop your saving activities. You can solve two problems simultaneously. Reducing your debts will save you costs in the future, and your savings will form a fund that will secure you when new expenses appear.

You need to monitor your progress after a few weeks to observe how much you have accomplished. You will feel encouraged seeing your balance growing. You will feel more accomplished when you reach milestones such as your first $500 or your first month of saving.

Staying Consistent

Budgeting your finances will be simpler when you do it with a partner. You can talk to a friend or family member about your plans and regularly check in with them. This will make it harder to fall into unhealthy financial habits.

Reserve your emergency fund for emergencies only. After you've tapped your emergency fund, make a plan to build it back up as soon as you can. By replenishing what you spend, you maintain a robust safety net. Building a fund will take time, but start where you are and every dollar counts. You may only have ten or twenty bucks a week to start with, but it’s a good habit to build upon. Start as soon as you can so that you will feel the peace of mind that you're prepared for whatever is coming your way.