Emergency funds are life’s safety net. No one can predict the crises or events of the future, so having a rainy day fund will help you cope with whatever life throws at you. If you’re looking to future-proof your day-to-day life, here are seven tips for building an emergency fund that’s there when you need it.
1. When To Use Your Emergency Fund
We tend to think of emergency funds in bad times, but the best time to use your emergency fund is when tapping into it can change your life for the better. For example, you could use it to cover an addiction recovery cost in your journey to healing from substance abuse. Maybe you lose your job, and your emergency fund becomes the fuel for a career dream you never pursue. Whatever it is, just because it’s an emergency doesn’t mean there won’t be a light at the end of the tunnel.
With that said, avoid using your emergency fund for anything but the direst of causes. If it’s still possible to use the money in your checking account, leave the emergency piggy bank unbroken.
2. Set Small Goals For Yourself
It’s easier to build an emergency fund when you can achieve a series of small, short-term goals. Realistically, saving for a fund can take two to five years, so having weekly and monthly goalposts can help you stay on track for success. Slow and steady is also an excellent method for those with less liquid money, as even five dollars a week can seriously add up over time.
3. Look For Opportunities To Save
Finding new opportunities to save money can help you redirect more cash towards an emergency fund, even if your income doesn’t change. For example, you can save money on tech expenses and reduce expenses by hundreds of dollars a year. That much extra money makes it much easier to build an emergency fund.
4. Make Sure You Can Access It Quickly
Unlike a retirement fund, emergency funds are cash you should be able to access with minimal notice. Consider diversifying the location of the fund, with some in cash or precious metals and the rest in quickly accessible investments. The best emergency funds are accessible in minutes and no more than a day at most. After all, disaster rarely announces itself before it strikes.
5. Save The Right Amount
Forty dollars per week is a good starting point for most people to put towards their emergency supply.
Overall, the best amount to have in an emergency fund is three to six months’ worth of household expenses, assuming you’d be living frugally.
An exceptionally resilient emergency fund has at least $30,000 in it, but it can be intimidating or impossible to save that much right away. That’s why it’s better to focus on smaller goals that are suitable for your income. Otherwise, you may be too intimidated to start, and your fund will never take off.
6. Manage Your Other Finances Well
The best way to avoid dipping into an emergency fund prematurely is by having a good grip on the rest of your finances. For example, parents often make mistakes when trying to climb out of debt, and these over or underestimations can leave them dipping into the emergency fund to pay for monthly expenses. Proper money management skills can reduce these problems and make creating and sustaining an emergency fund much easier.
7. Automate The Process
Automation makes it significantly easier to build an emergency fund. Most employers and banks can set up a regular contribution system that automatically deducts predetermined amounts from your paycheck.
These systems ensure you won’t forget or get tempted to skip a contribution “just this week,” both of which can lead to finances spiraling out of control. If the emergency money redirects before it even hits your checking account, it will be much easier to avoid spending it.
Creating any savings can feel impossible if you don’t already have the cash lying around. However, you can create a viable emergency fund from even the lowest income streams with intelligent budgeting. Disaster can strike at any time, so it’s best to start preparing now.