Savings isn’t just there to help you eventually pay for the important things in your life, like cars, a new home, or a great vacation. Although you can reach your long-term goals with a savings plan, you can also use the cash you have squirreled away for peace of mind, and a release from stress. An emergency fund is an extra packet of savings that everyone should consider including in their budgets. Unlike other savings, you don’t touch this money unless something urgent happens, like you lose your job and need to pay the bills, or your car suddenly breaks down.
The idea of having an emergency savings fund is that you won’t have to take out additional loans or go searching for handouts for your loved ones if you suddenly have a financial issue that you need to tackle. Unfortunately, just like any kind of saving, you do need to find the cash to deposit into your emergency savings fund before you can reap the benefits.
Why an Emergency Fund is a Top Priority
Having an extra bit of cash aside that you can turn to when problems arise is more valuable than you might think. While it’s difficult for anyone to live their lives constantly worrying about the “what if’s”, we all know that bills can hit when we least expect it. If you have long term goals, like buying your own home, having a safety net in place will mean you don’t have to deplete your savings going forward. That extra cash that you keep aside for rainy days will also mean that you don’t need to go and borrow money that could end up costing you more in the long-term. Even if you start by only putting around $20 a month towards your buffer to begin with, you’ll quickly end up with plenty of cash that you can use for a wide range of reasons.
How to Add Emergency Savings to your Budget
The first step in figuring out where to find the cash for your buffer, is looking at your budget. To understand your incoming and outgoing expenses, you should check all of your bank statements and receipts from the past few months, to get an average of how much you typically spend. Remember to account for less regular expenses, like paying for birthday presents for the kids, or making sure that you have enough cash to get your hair cut. Once you’ve figured out how much you’re spending each month, and how much you’re earning, you should get a decent idea of where your most significant problem areas are. For instance, you may notice that you’re spending way too much in the entertainment part of your life. If that’s the case, you can make a new strategy for your spending that involves gradually cutting down on how much you pay for entertainment. Remember, the idea isn’t to cut all the fun out of your life immediately, but to reduce your expenses just enough that you have more cash for savings.
Tackle the Easy Fixes
Crucially, saving money doesn’t just have to mean giving up the things that you enjoy. If you remove too many of the things you like from your budget, then you’re not going to stick to your plan. With that in mind, look for easy fixes that will help you to save cash without changing your lifestyle. For instance, you might find that switching to a different electricity provider saves you a few hundred dollars a year on your bills. Changing your insurance provider, or looking for a new deal on your broadband is also a great way to cut costs in a way that you’re not going to notice from a lifestyle perspective. You should also be getting rid of any subscription services that you don’t currently use. Food delivery systems that end up putting more trash in your garbage and less food on the table aren’t a good idea.
If you signed up for the gym at the beginning of the year but you haven’t gone since, cancel your membership. Remember you can always work out at home if you want to get fit. Even refinancing your existing loans can be a great way to save some cash fast. Refinancing your old student loans into a new product here with a better deal saves you a lot of money in the long-term. You can look for a private lender online to get started and save a fortune with an offer that wasn’t available to you when you first got the loan.
Make Extra Cash Whenever You Can
Finally, if changing your budget and cutting out extra expenses isn’t enough to fill your emergency fund, then you might need to look into new ways of making cash. You could consider applying for a second job if you have the time or using your free hours wisely by freelancing through a website, or online service. There’s money to be made from things like ride-sharing apps if you have a car, or you could rent out a room that you’re not using around your home. It might even be a good idea to look into selling things from around your home that you don’t currently use. Although these sales might not add up to a lot of money at first, any extra cash towards your emergency savings can make a huge difference.
Once you’ve got some initial money to put towards your buffer, make sure you have somewhere to keep the money that’s not in your current account that you use for every day expenses. Opening a separate savings account will ensure that you’re less tempted to use the money as it builds up. You may even be able to automate your saving strategy by choosing a day each month when a certain amount of cash transfers from your income, to your savings account. That way, you can almost forget about savings until the time comes to check your balance and get a nice reminder.