Life happens. When it does, it’s costly and often more than we can afford. In fact, a 2014 report by the Federal Reserve, revealed 47% of Americans would not have the funds on hand to pay for an unexpected, $400 financial hardship. For those Americans who drive the same beat-up car, avoid medical or dental treatment, sacrifice family vacations, or put off home repairs until they are absolutely necessary due to financial restrain, don’t forget that many of us can relate. We can’t predict the future, but we certainly can prepare.
How can you start an emergency fund for life’s rainy days?
1. Track your expenses.
Would you be surprised to find that most people do not know how much they spend each month? Ignorance is not always bliss, my friend. Yes, watching your money disintegrate is painful, but tracking your spending is crucial to start building financial stability with an emergency fund. We live in a time period where our spending is done electronically, and of course, blindly: debit cards, credit cards, and auto-payment plans. Its much easier to part with your hard earned money when you don’t have to physically part with it, isn’t it? Do yourself a favor and make sure you’re aware of your spending habits. Without tracking your expenses, these next 3 steps will be nearly impossible.
Tip: Try downloading a mobile app that helps track your expenses, like the “Spending Tracker” app.
2. Set a comfortable goal.
Experts say that an emergency fund should cover three to six months worth of realistic living expenses. You’re probably thinking, “how am I going to do that?” Don’t give up now. Anyone can save for an emergency fund with the right goal and plan in mind. You’re on the right track and creating a solid building block to financial stability, even with life’s curve balls. Be realistic when setting your goal and adjust if you feel it is not feasible. An emergency savings is there to help you, not hinder you.
Tip: Use an emergency fund calculator to see how much money you need to put aside, then set your goal.
3. Devise a proper plan.
When you know your expenses and set a reasonable goal, you’re well on your way to start saving. Your goal and plan go hand-in-hand, so make sure you work your plan around your goal. For example, your goal is to save $300 towards your emergency fund within the next 3 months. Therefore, you will need to add an extra $100 to your expenses each month. Plan to automatically transfer $50 in your emergency fund every two weeks, etc.
Tip: Imagine if you “pay yourself first.” In other words, routinely put money into savings before spending on anything else.
4. STICK TO IT!
Holding yourself accountable is the hardest part of saving for an emergency fund, or any financial goal in general. If your goals are realistic and attainable, you will have less trouble moving forward. Also, ensure that you are saving with a positive attitude! Once you start labeling saving for emergencies as a burden, it won’t work.
Tip: Keep your rainy day funds separate from your other accounts. Labeling various accounts, such as “for emergency only” might help you from tapping into them intentionally or accidentally. Don’t make excuses for yourself!
“Today, I often meet people who are too busy to take care of their wealth. And there are people too busy to take care of their health. The cause is the same. They’re busy, and they stay busy as a way of avoiding something they do not want to face.” – Robert Kiyosaki, Rich Dad, Poor Dad