Having an emergency fund provides your personal finances a backbone. It can be stressful to manage your budget, let alone start building an emergency fund. Thus, an emergency fund is mostly overlooked by most people as expenses and investment opportunities come along.
What is an Emergency Fund? What Do I Need it For?
It is definitely not for purchasing a new apartment or a car. It is not for paying your college tuition either. It is also different from your savings.
An emergency fund is used when an emergency comes up (from the name itself). It provides you the peace of mind when something unexpected happens, like a loss of a job.
You can also use your emergency fund if you have medical emergencies, although the best option when a medical emergency is having health insurance. Click here if you need a quote.
It is your savings buffer, so when a situation arises, you don’t have to loan money from the bank or family members resulting in interests and stress.
How I Started Saving for my Emergency Fund?
Years ago, I live month by month, finishing up all my salary in one go. I thought I wasn’t earning enough to even start saving for an emergency fund. I thought it wouldn’t be possible.
Until I started attending workshops about money that help me with my mindset. I never thought that all I needed was a tweak on how I think. I read articles with helpful advice like the one you’re reading right now.
Writing articles for this blog and helping others thrive in their personal finances is also a way for me to educate myself.
The next thing I knew, I’m making more money by applying the philosophy and saving enough for my emergency fund.
How Much Should Be Your Emergency Fund?
A lot of books claim that you’ll need your salary multiplied into six months. However, the pandemic has proven that you’ll need more than that.
I recommend that it should be at least a year, with continuous accummulation because you’ll just never know.
Yes, it can be overwhelming to hear, but you don’t build an emergency fund overnight. The most important is that you get started while keeping the mindset as you go along.
You can start small for as low as $500. Every month when you get a salary, make sure to contribute something to it. Establishing a small emergency fund allows you not to go broke and go back into debt.
Steps in Building an Emergency Fund Faster
How do you free up money to start building your emergency faster? Try these tips:
1. Cut your expenses.
Do you really need to have that cable tv subscription? Can you cut down your cellphone charges? Is there a way to get things for free rather than to pay for them? It may sound cheap, but cutting down expenses can free up money for your emergency fund faster. Here are other ways to cut down your expenses.
2. Check your closet and see if you can sell anything.
Maybe you have belongings that you don’t use for years now. How about making money out of it? Look around your house from your kitchen to your garage. Then list them on Facebook Marketplace or Carousell. You’re decluttering and at the same time, earning from it.
3. Make more money.
How about starting a business? Nowadays, you don’t need a lot of money to start. You can even start for free. You can sell digital products and earn from them. Check out my top five profitable digital products you can sell right now.
Starting a business comes with risks so it’s important to study them properly before establishing your own cafe or buy and sell business.
Another option is investing your money, but make sure that you’re not doing this blindly.
Where to Put My Emergency Fund?
We recommend putting it into a high-yield savings account so that you can access it anytime. No, not in your piggy bank or in a time-deposit bank. Put it in a convenient place and forget that it ever exist.
What do you think? Do you have any experience in saving your emergency fund?