Coast Through Life with Confidence Through an Emergency Fund

Darryl Bachmeier
Sep 10, 2020
Finance


Save up for the rainy day, they say. But now that there are more things we can spend on, it is increasingly challenging to put away those savings in lieu of present comfort.

We now have more bills to pay. Our children are more exposed to luxuries than ever before. And it is harder to keep up with this fast-paced world.

However, now is also the time that we need to be more prepared for emergencies. As it can easily deplete our resources if we don’t have a buffer for these uncertainties.

To those who are overwhelmed by the 3 to 6 months’ emergency fund rule, taking baby steps is the key. The more challenging it is to build it, the better you are at putting value into your efforts. It takes time to see the value of something, and it makes us use it wiser.

What is an Emergency Fund?

Basically, your emergency fund is your cushion when life surprises you with something that pushes you back. Usually, these surprises are the things that will carve a huge dent out of our everyday expenses.

  • Serious and sudden sickness
  • Major home or car repairs
  • Anything that answers you with “Yes” to the following questions:
    • Is it urgent?
    • Is it necessary?
    • Is it sudden and unexpected?

We may be the most organized person who utilizes three planners but nothing can prepare us for certain situations in life. An emergency fund may not take the full blow, it but can provide a significant leeway and absorb the shock to make it more manageable on our end.

How to Build an Emergency Fund?

To have a more stable leeway, your emergency fund must be about 3 to 6 months’ worth of your income. But essentially, the more the better. But you should also take into account other investment vehicles you can utilize with your money, not just an emergency fund.

The point is that you should save something liquid and easily accessible. Cash is preferable but for safety and provision of a little hassle to access, it can be tucked in a bank savings account. Some investments are more liquid than others. You can also choose this to give your money more purchasing power.

When you used up your emergency fund, make sure to take time to replenish it again. A target amount is important and must be consistently set aside. This is to provide direction in your goals, as well as a sense of achievement.

Here are more tips to build and keep an emergency fund consistently:

Set a monthly budget

Budgeting is a fantastic life skill that can help you maximize your income. It is being intentional about your spending.

Unlike with defensive/reactive spending where you decide based on what’s trending, your cravings, or mood at the moment, budgeting disciplines you to prioritize the essentials first and only to live within your means.

Setting a monthly budget helps you make consistent contributions to your emergency fund. And also, it can somehow help you lessen the risks of experiencing a major impact from the blows in life. Budgeting also teaches you to live simply, so any unpredictable circumstance may not shake you and your lifestyle so much.

Evaluate your spending habits

When you build your emergency fund, you should also consider the lifestyle you intend to maintain just in case you encounter a major setback as a breadwinner.

When you are maintaining something big, you might get discouraged about setting aside a sufficient amount as your buffer. Before you do, shift your perspective to something you can also control - your spending habits.

By omitting the things that don’t add value to your life, you are freeing yourself of unnecessary burdens. This way, you can have a more realistic and encouraging view of the emergency fund you intend to keep.

As you go along, you may also add these little savings you get from adjusting your lifestyle to your emergency fund.

Pay off your debts

Debt keeps you from saving. Financial experts even recommend paying off your debts first before setting up your emergency fund. This way, you do not have many monthly payments that take so many slices off your income pie.

There are many strategies that you can follow to pay off your debt faster so you can start building your emergency fund. Perhaps one of the most popular is Dave Ramsey’s Snowball Method. This asks you to start paying off the smallest debt and then moving to the next until you’ve paid for everything.

Wrap Up

Building an emergency fund helps us wade through life’s ups, downs, and uncertainties with more confidence. Financial management helps make money work for us, and not the other way around.

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