09 Jun 3 Ways to Build Your Emergency Fund
An emergency fund is one of the most important parts of a solid financial plan. Not only does an emergency fund offer you peace of mind, it can also prevent you from going any further into debt. At Pivotal Wealth, we specialize in getting people out of debt and on their way to financial freedom.
What is an Emergency Fund?
An emergency fund is cash set aside for emergencies and unplanned expenses. Having an emergency fund filled with savings can help cover expenses and is much better than taking out a loan or paying for costly emergencies with high-interest credit cards.
Setting aside emergency fund money for unexpected events such as car repairs, medical bills, or loss of income is always a wise idea. Here are a few examples of costly unexpected events that you may not be able to pay for out-of-pocket.
- Death in the family
- Unforeseen living expenses
- Emergency home repairs
- Sudden auto repairs
- Unexpected medical expenses
How Much Should I Save in an Emergency Fund?
Start small. Depending on your expenses and current income, this could look like $100 or $500 per month.
As you become used to saving small amounts, work your way up to establishing a savings that will cover several months’ worth of expenses. Your savings goals are up to you, your income, and your priorities, but it’s good to plan to save enough to cover at least a half year of expenses.
Emergency funds aren’t built overnight. It takes most people a significant amount of time to build up this much money, especially with all of their other monthly expenses and payments. However, there are some tried-and-true ways to save up your emergency fund a bit faster.
Create a Budget and Factor in Emergency Savings
Sit down with your income and monthly expenses and payments and create a budget. See where you could spend less in order to put some money towards savings. Through budgeting, you’ll be able to see where you can cut back and put some money aside towards your emergency fund.
If you have a vacation savings amount that you put away each month, consider putting that towards an emergency fund for a few months, or splitting the amount and going half and half. If you dine out regularly, try to limit that expense and cook meals at home more often for a few months, and put the difference towards an emergency fund.
By adding a consistent amount to your emergency fund each month, you’ll quickly begin to build up a strong safety net. If you can’t find places to cut back in your budget, consider getting a side hustle in order to increase your income, and put that income towards your emergency fund.
Set Up an Automatic Deposit
Once you have created your budget and decided how much cash to put away in an emergency fund each month, set up an automatic deposit. It’s easier to refrain from spending when you transfer a portion of your paycheck directly into a savings account. If the money goes automatically to savings and you don’t even see the money in the first place, it can make the entire saving process easier.
Gradually Increase Savings
Increasing the amount you’re saving each month can give your emergency fund a much needed boost. If you increase your savings amount monthly, you may not even notice that any more money is missing.
Include Any Unexpected Income
You should also save any unexpected income you acquire, such as a holiday bonus or a tax refund check. After you have built up a significant emergency savings fund, you can use your unexpected income for more exciting things.
Seek Help From Financial Professionals
Saving up money in an emergency fund can be difficult if you don’t know how, or if you’re paying off other debts or expenses at the same time. Once you’re debt free, building an emergency fund can be much easier.
If you’re unable to build up an emergency fund because you’re swamped with debt payments, we can help. The financial professionals at Pivotal Wealth are more than happy to discuss debt relief methods with you, so that you can become financially free and get back to living your life. Contact us today to learn more.