For majority of the people, it doesn’t take any effort in spending money but it takes a lot of effort into saving it.
In this post, you’ll get actionable information on how and where you can keep save your money for financial emergencies. However, what you’ll learn here can also be used for many other goals such as; saving for market crashes, saving for a vacation, saving for starting a business etc.
Having a lot of money saved for emergencies is the first step in becoming financially secure. Every person must start building their emergency fund as soon as they start earning money, yet very few do it.
How much money should you have in your fund?
Your emergency fund must have enough money to be able to support you in cases of unexpected big expenses like; medical emergencies, losing your job or both at the same time.
It’s advised that you must at least have enough money saved in your emergency fund that you’re able to cover all your living expenses for 3 or more months in case you lose your job.
Also, make sure your emergency fund is easily reachable. You wouldn’t like to wait for days before getting your money in case of an emergency. The best place is a savings account in a bank within your city. It’s even better if you store it in a place that offers some interest on it.
Make sure you’re able to access your fund in multiple ways such as; through check, debit card, net banking, mobile banking etc. Also, make sure that your transaction requests are processed quickly.
How to put money in your emergency fund?
The first step is to make sure that your money outlet speed is less than your money inlet speed. You won’t be able to save any money is you pay more or equal in debt interest than your earn. Try getting out of debt as quickly as possible and reduce your credit card usage.
Second, try to add every income that comes towards you from any place other than your primary income source into the emergency fund. For example: interest from bank accounts, tax refunds, dividends from your shares, income from a side gig, money from sale of any old household item etc.
Third, every month take out at least 10% of your income and add it to your emergency fund. Weather you earn money from business of job, you must put 10% of your monthly income into your fund. Control your temptation of spending money and make it a habit to live your life on 90% of your income.
Make “adding 10% to your emergency fund” the first thing that you do every month when you receive your salary.
It will take a lot of time even if you just decide to save three months of your income. Considering you only add 10% of your monthly income to your emergency fund, it would take more than 2 years to completely fund it for three months of salary.
If you could afford to add more than 10% of your monthly income to your fund without lowering your life standards than by all means do it.
In case of an emergency, when you take money out of the fund, after the emergency situation is over, try to refill the fund as quickly as possible.