Few people get through their entire lives without experiencing a financial emergency. You might be fortunate enough to never have to deal with the aftermath of a hurricane, tornado or earthquake, but when you’re living on a tight budget, something as simple as a broken water heater or car trouble can be hard enough to contend with.
And if you’re not adequately prepared, it can send your finances into a tailspin. Here are 5 ways to build a successful emergency fund in case a financial emergency does happen.
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All too often, people use a credit card in place of an emergency fund. Using a credit card can take care of most emergencies, but it comes with a high cost. You’ll be making payments on it for months (and in many cases, years) to come, and you’ll have to pay interest. If you had just saved up enough money to cover the emergency, you could pay for whatever life throws at you and move on.
Saving up a good emergency fund isn’t as difficult as you might think. I try to put away a certain amount each month, and so does my husband so that by the end of the year, we have enough to cover whatever emergencies come our way. It will probably take you a year or two to accumulate the recommended three to six months’ worth of income, but if you just save up as much as you can, you should have enough to cover most emergencies within a few months. Here are some tips that will help you build up that emergency fund as quickly as possible.
5 Ways to Build a Successful Emergency Fund
1 – Take a look at your entertainment expenses. Do you go out to eat several times a month? Do you really need that cable package with all of the movie channels? There’s no need to cut out entertainment altogether, but if you can cut back on those expenses and put the money you save in your emergency fund, you’ll be able to save money much faster.
2 – Instead of having fast food for lunch, start brown bagging it. Not only will you save money that can go toward the fund, you’ll probably also eat healthier.
3 – Try to find a better cell phone plan or cancel your cable. If you have lots of extra minutes or a text plan that you do not use, see if your carrier has a less expensive plan that better suits your needs. Check with other carriers, too, because you may find one that offers a better deal.
4 – Once you’ve trimmed your budget, allocate the amount you’re saving specifically toward saving for your emergency fund. Treat it like a bill that must be paid at a certain time each month. That way you won’t be tempted to spend it on something else.
5 – Have a garage sale or sell some stuff on eBay. Most of us have lots of things sitting around collecting dust – not because they’re no good, but because we just don’t have any use for them. Selling these things will give you extra money to put toward your emergency fund, and since it’s money that wasn’t already included in your budget, you won’t miss it at all.
Having an emergency fund will prevent unexpected expenses from seriously affecting your finances. And in the event of job loss or illness, it could keep the bills paid for a few months until you’re back on your feet. If you don’t already have an emergency fund, make starting one a top priority!