How to Start an Emergency Fund
Starting an emergency fund from scratch can feel a bit overwhelming. Three to six months salary feels like a huge amount to save, especially if you have heavy debt commitments.
There are some little tricks you can play on yourself to help you along and before you know it, you emergency fund will have a very healthy balance.
Round Up and Sweep the Difference
If your budget is currently calculated down to the cent, you can rework it so that your payments are rounded up to the nearest dollar. For instance, if you make a payment of $34.10 you can record $35 and save the difference. If you do this for every purchase it can add up to a tidy sum.
Put Pay Increases and Bonuses Aside
Instead of falling prey to lifestyle inflation, be careful not to expand your belt when you get an increase or a bonus and put the excess into your emergency fund account instead. This will get you to your goal in a painless way because you essentially not have to change anything; all you would need to do is ignore the increase in your paycheck.
Save the Change
Every time you get change practice putting it into a jar. At the end of the month you can sort your coins, take them into the bank or change them for dollars at the nearest Coinstar and put the total amount into your emergency fund account.
Set up an Automatic Deduction
Another way to save is to make it automatic. Instruct your bank to send a certain sum to your emergency fund account every month. This way there is no way to mess it up because the money will be gone before you have the chance to spend it on something frivolous.
Cut out an Expense and Save
If you can identify something that you spend money on everyday or every week and you can give it up and devote the money to building your emergency fund, your savings will be focused and highly likely to succeed. Skipping your morning coffee and bringing the drink from home instead is one way to divert cash from one expense and channel it into another.
It is important to have a buffer in case the unexpected actually happens. The emergency fund is one of those things that you may not place a high priority on until it's too late. Avoid being caught off guard and prepare by implementing these simple tips.
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