It can happen at any time. Your car may break down, you may have to go to the hospital or you may lose your job. All of these things can be overcome, but there is one thing that they all have in common. You will need money to help you overcome them. If you do not have the money you need to deal with an emergency, you could end up with even bigger problems.
When you need money to deal with an emergency, you have two main options. You can use money that you have on hand or you can borrow the money. If you are using the money that you have on hand, you may have to give up something else that you were going to use the money for. This will happen unless you have been saving for emergency fund needs. When you have an emergency fund, you will have the money you need to overcome your issues and you will not have to worry about borrowing money or spending money on the emergency that you needed for some other bill.
It is not easy to save money for an emergency, but a few tips could make it a lot easier.
Know what you spend
You need to know exactly how you are spending your money. Track your expenses for at least 30 days. When you have done this you can start to figure out what expenses are necessary and which ones you could do without. Many people spend a lot of money without thinking. By writing down your expenses you will start thinking about how you are spending money and you can find ways to spend less. The money that you dont spend on those things can be put into your emergency savings fund.
Learn what you owe
Most people owe money to at least a few lenders. The amount of credit card debt that people have is often surprising. Before you start to try to build an emergency fund you should look at your credit report. This will give you a list of all of the money you owe and prioritize what debts you should think about paying off. If you can reduce your debt you will not have to make the monthly payments on the debt and that saved cash can be put into your emergency fund.
It is also a good idea to review your credit score on a regular basis as you are paying off your debt.
The hardest part of creating an emergency fund is to actually start saving the money. Even if you have the best intentions if you do not actually put the money into savings it will not work. An emergency savings fund should not be the same as your checking account. It should be a separate account that you have to access differently if you want to save money.
One of the best tricks when it comes to how to start saving money is to have the money transferred automatically from your checking to your savings account whenever a paycheck is deposited. If you never really see the money, you will not miss it. Most banks allow you to transfer funds between accounts easily. You can set this up on a recurring basis and it will not be long until you have the fund that you want.
It is also good to consider putting extra money into the savings fund whenever you can. If you get a tax refund, put it into savings. If you get any money unexpectedly, it can help build the fund.
Financial professionals recommend that you have at least six months of salary in your emergency fund. This is the minimum you should shoot for and some people recommend having at least a years worth of salary. You need to figure out how much you want and then come up with a plan to get there using the tips above.
It is not always exciting to have an emergency fund, but it is a smart idea. If you do not have one, now is the time to start. You will be happy you did in the event of an emergency.