An emergency fund or cash cushion is money set aside specifically to cover household bills, unexpected expenses, and other money problems that may crop up in an emergency. These emergencies tend to be losing your job or getting sick or injured, but it could easily be other things, like a house fire, a car accident, or a break in. The amount you need to save up depends on your financial situation, but it’s always best to have enough to cover you for a few months at least. The problem here is that this is a lot of money, and saving up so much is difficult. To make things easier for you, here are some useful tips.
Open Another Account
The first thing that you need to do to help you build up your emergency fund is open an account separate to the one that you use every day. This means you’ll be a lot less likely to dip into your savings every time there’s a birthday party to pay for, or you want a new pair of shoes. Make sure that you can access this account quickly when needed, and, if you can, find one that earns interest over time.
Pay Yourself First
Rather than put random amounts of money in your savings every now and then, go through your income and expenses and work out exactly how much you can realistically spare each month. Then, the day you get paid, make sure to pay yourself before anything else. If you’re worried about forgetting, you can set this payment to go out of your bank automatically at the start of each month.
Cut Household Expenses
If you’ve been through your finances and decided that you don’t have any money to spare each month, it’s time to start cutting your household expenses. You can start by cutting out non-essential expenses, like takeaways and meals out. You could also contact your energy, water, and internet suppliers to see if you can haggle a better deal.
Earn On The Side
If you’ve got the time, you could also consider ways to earn some extra money on the side of your regular income. A great place to start is by selling some unused belongings from your home on the internet, like clothes, books, and games. These days, you can even sell diabetic test strips. You could also consider getting a second job and work evening and weekends.
Tidy Up your Account
If you get to the end of the month, and you’ve still got money left in your account, you could take some of this and put it into your emergency fund. If you want to, whatever is left you could put into another separate account, and set up another fund. This fund could then use for days out and treats, in circumstances where your regular income doesn’t cover the expense. You could even use it to save up for a trip or vacation.
Things might be going great now, but they can easily go wrong. It’s essential that you’re prepared for this, and start building your emergency fund as soon as you can.