Debt & Budgeting
If you’re working hard and want to build some wealth and security in your life you must be prepared for unexpected expenses. A so-called emergency fund is money you save and set aside for those costly situations you were not expecting.
A good emergency fund could pay for unexpected car repairs, a furnace problem, or medical expenses you did not anticipate. You won’t have to borrow or use a credit card to pay, allowing you to avoid getting even deeper in debt because of the interest rates associated with that credit card.
Not having an emergency fund — or having one that is inadequate, can leave you facing more than a little economic uncertainty in life. Work hard to establish one so you can have some certainty in an uncertain world.
How Much Will You Need?
There are many different answers to the question of how much will you need. One of the more common answers is three to six months’ worth of salary.
Others advise having three to six months’ worth of expenses in your emergency fund. The bottom line is the more you can afford to save for it the better off you will be.
The higher your risks for things like losing your job, facing long-term health problems, or a significant home repair, the more money you need in your emergency fund.
Unfortunately, while you may be able to anticipate some of these risks, many of them catch us all unaware and unprepared. That is why emergency funds are so necessary.
You do not even have to start big when beginning an emergency fund. However, you must get started if you want to achieve financial freedom. Having a plan will help you gain peace of mind around your finances.
Your first step is to set aside a certain amount for savings each month. Then, you would place and place that money in a separate account for emergencies.
Those steps are a good start, but they’re not enough. You also need to evaluate ways to increase monthly contributions to the emergency fund without growing your debt in the process.
Planning for your future financial success accomplishes little unless you are taking equal action to eliminate debt.
At the very least, you need to actively work to prevent the accumulation of new debt for yourself and or your family while building your emergency fund in a smart way.
Finding Ways to Save
If you have searched your budget and are having difficulty finding extra dollars to invest in your emergency fund, you have two options to consider. You can either discover ways to earn more money, or you can find ways to cut your spending.
Identifying new sources of income is an excellent way to boost your emergency savings. However, make sure you understand that your new income may place you in a higher tax bracket that could have you barely breaking even when all is said and done.
For many households, the added costs of adding a job (wear and tear on vehicles, work clothes, meals on the go, additional childcare, and other out-of-pocket costs) make it an unattractive option even before considering the time spent away from family and other potential negatives.
Because of those reasons, many people would rather find new ways of saving money as the better choice for improving their emergency fund contributions. Here are a few ways to work a little more wiggle room into your budget so that you can save for rainy days:
- Skip the coffee house lattes & drive-thru meals. Investing in an on-demand coffee maker for your home is far more affordable and provides you with an infinite number of flavor options – buying items at a grocery store ahead of time may take some planning but the cost savings are real.
- Use a programmable thermostat in your home. It can keep the temperature constant and help you shave hundreds of dollars off your energy bills each year.
- Eliminate your expensive cable bill. With all the streaming services and free entertainment programming available today, traditional cable can be a waste.
- Switch mobile phone plans. Closely examine how much you use your mobile phone and decide whether you might be better served with a pay-as-you-go mobile phone service rather than a lengthy – not to mention expensive – contract with one of the major networks.
Automating the Process
The final step is the easiest for most families. Make your emergency fund contributions automatic. As soon as your paycheck hits your bank account, have your account set up to send a specific dollar amount to the emergency fund account. That way you can watch your savings grow without having to make any extra steps in the process.
Emergency funds are growing in importance day by day – especially if you have a family. You do not have to move mountains to get started, but the sooner you begin, the more help you have when life’s little emergencies arise.
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