Why Do You Need An Emergency Fund?
No one can plan for an emergency, so having an emergency fund for incidents such as car accidents, medical emergencies, unemployment, or even something like bursting pipes is extremely important.
And having this money set aside not only helps you to have peace of mind, but it also can help you to stay debt-free (or avoid more debt) in the future because you will not have to resort to credit cards or loans to cover incidentals.
But despite these benefits, approximately 59% of the U.S. population do not have an emergency fund at all. So, the big question is what can you do to create an emergency fund?
How To Create An Emergency Fund?
Well, the biggest part of creating an emergency fund is saving. However, you have to know how much to save in order to get started. And the first step to doing that is to determine how much money you spend monthly.
Then, you need to decide how long you want your emergency fund to last, which should cover (ideally) at least 3 to 6 months of your expenses.
So, let me put a quick example down below.
Let’s say that you spend about $2900 a month and want an emergency fund to cover half the year. Then, your total might look a little something like this 👇.
Monthly spending: $2900
Emergency Fund duration: 6 months
$2950 x 6 = $17700
Next, you’ll have to find out how much money you’d like to save each month. And you’ll also need to think about how much you can actually afford to put aside (and not touch) for the time being.
A quick and easy way to do this is by dividing your savings goal by the number of months that you plan to save for.
For instance, if you wanted to save up to your goal of $17700 in 2 years, you would divide it by 24 months.
And your monthly savings goal would be close to $740.
Calculations:
$17700/24= $737.50 per month
However, a trick to help you to reach your goal easier is to split your monthly total into a weekly saving goal. So, if you had the monthly goal from above, you would need to save about $184 a week.
Calculations:
$737.50/4= $184.38 per week
Or, if you want to take an estimated approach, you can find saving challenges to help you reach your goal.
Where Should I Put My Emergency Fund?
Also, before you start your emergency fund journey, you’ll need to have a designated place to save your money. Personally, I would suggest that you create an account with a FDIC insured bank to keep your money protected. And starting an account that earns interest can also help you to gain some money on the side!
But another great place to save your money is in a moneybox.
Extra Tips To Starting An Emergency Fund
- Set up automatic withdrawals from your account to your emergency fund. This will help you streamline the savings process and help you to resist the temptation to instantly spend money that you need to save for your emergency fund.
- Write yourself a little note about why you shouldn’t be spending the money and what emergencies it can cover. Then, place it in the money box. Hopefully, this will deter you from spending your emergency fund.
- Make sure that it’s hard to reach. For instance, if you’re putting your savings into an account that has a debit card, make it harder for yourself to purchase anything with it. To do this, you could:
- Put the card in a lock box.
- Save your money in a place that you can’t access easily (make it harder for you to spend money).
- Make sure that the card to the account is not auto saved on your devices.
- Keep your emergency fund readily accessible, so if you need to use it suddenly you won’t face heavy penalities (this means that putting it into something like a CD would be a bad idea).
Hopefully, you enjoyed learning about how to create an emergency fund!
Hannah Roberts is the creator of Do. Live. Study. She loves to learn new things and hopes to help others as they go throughout their journey as an adult. You can connect with her below.
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