Everyone knows to have money aside in case of emergencies, but not everyone understands how to make it happen. According to a survey by Bankrate, 21% of Americans state that they lack an emergency fund. Therefore, it becomes almost impossible to solve unplanned expenses like losing a job, getting into an accident, or falling ill.
However, how do you prioritize savings when living on a tight budget? What is the trick to paying monthly bills and still having enough left for your emergency fund? Well, here are five tips for building an emergency savings fund regardless of your income.
Create a Budget With an Emergency Fund in Mind
You can only save towards an emergency fund once you create a budget. Figure out your total monthly income and calculate what remains after paying for the basics — including housing, food, clothing, utility, insurance, and school costs. Doing this helps you determine the exact amount that you can channel towards savings.
Because you have a rough idea of how much you want to be locked away in your emergency fund, set a specific monthly savings goal. Determine how much you are willing to set aside from what is left after paying the bills. Doing this will also help you pinpoint when you will have enough funds in your account for a rainy day.
Most people wait to see what is left by the end of the month to determine the amount that goes towards savings. However, it's best to save after you get your paycheck. Put aside the specific amount that needs to go towards your emergency fund before doing anything else.
Ensuring the money is safely deposited into your savings account will reduce the temptation of spending it on unimportant needs. You will also get into the habit of saving as a priority and not as an afterthought.
Track Your Expenses
Ensure you track all your expenses to help you stick to your budget. For example, indulging in an unplanned five-star dinner might tempt you to dig into your savings. Upgrading to that new phone or laptop might interfere with your monthly savings plan.
Try to stick to your budget until you attain your emergency fund goal. Postponing such luxuries acts as your motivational factor towards achieving your financial goals. After all, it's more relaxing to indulge in five-star restaurants once you attain financial freedom.
Consider Automating Your Savings
You can always take things a step further by setting up an automatic transfer from your checking account to your savings account. Because the process happens each time you get a check, there is no possibility of skipping payments.
However, you get the option to set a dollar percentage or amount when you take this approach. It will ensure there is zero chance you forget to put the money aside. Equally, you will learn to forget that a portion of your paycheck goes towards savings.
Find a Side Gig
Side hustles are an excellent way to make some extra cash to channel towards your emergency fund. It will also help you get to your savings goal much quicker. The trick is finding a side hustle or part-time job that you love.
Luckily, there are several ways to earn money online with flexible working hours and payment options. You don't have to work during office hours, thus compromising your current occupation. Instead, you set your hours and make money relaxing in your home.
An Emergency Fund Takes Time
Starting an emergency fund can be a challenging task, especially when you are on a budget. However, the tips above can help you get on the right track towards financial freedom. Start small and gradually see your emergency fund grow.