24 Aug Planning Financially for Emergencies
Many who are beginning to plan out their budgets forget one very important aspect in the process—planning for emergencies. Building and maintaining an emergency fund is crucial for allowing you to maintain your normal lifestyle even in the midst of unexpected heavy financial burdens such as medical bills or sudden job loss. If you’ve never before been one to plan financially for emergencies, here is a quick guide to planning out your budget with emergencies in mind.
Set a goal emergency fund amount.
Many financial advisers recommend establishing an emergency fund that covers about six months’ worth of basic expenses. Some even recommend saving up for eight months’ work of expenses. Whatever you decide, don’t let yourself become intimidated before you even start. Keep in mind that this is your long-term goal. In the meantime, start small if you need to, creating a more tangible goal of reaching, say $500 for your fund. Your goal should challenge you a little without cramping your lifestyle excessively. Then keep keep chipping away at growing your fund, increasing that shorter-term goal as the months go on. Having any amount of money in your emergency fund is better than none at all.
Add unexpected sources of income to your fund.
So, you recently received an unexpected monetary gift, or a bonus in your paycheck. Before you begin thinking about what you might spend this extra bit of money on, make a resolution to send it right to your emergency fund. This is a great way to build your fund without greatly disrupting your normal lifestyle.
Look for places to cut your expenses.
If you’re worried about how you might find the extra funds to save, say, $25 per week for your emergency fund, look for areas in your spending where you can cut your expenses. Shop around for a more affordable cell phone plan or car insurance, for example, or resolve to start applying more money-saving grocery shopping techniques. If you eat out frequently, you might start making more meals at home, or if drive yourself to work every morning, try carpooling or commuting when possible to save on gas. Once you start developing a mindset for how to cut your expenses, you’ll likely find that the ideas start coming to you.
Make your emergency fund contributions automatic.
Once you get the ball rolling on contributing to your emergency fund, you will be able to set aside a particular space in your budget just for that purpose. Start setting this amount in your budget every month, and consider even creating automatic payments from your paycheck into your emergency fund every month. This will keep you from lamenting the money you’re “losing” and will help the process of building an emergency fund become as painless as possible. It might even help you to establish a special bank account at a separate banking institution that you’re used to using, so that it’s harder to dip into your emergency fund when you really shouldn’t be. Plus, you can shop around for an account that will give you the best interest rate for your contributions.