- An emergency fund is cash that you can access quickly in an emergency.
- While it’s clear why we need an emergency fund, 69% of us don’t have $1,000 available.
- These 5 steps to build an emergency fund are designed to help you start putting together your own cash reserve for future emergencies.
Do you have an emergency fund?
An emergency fund is cash you can access quickly in an emergency. It’s clear why you need an emergency fund in order to cope with sudden unexpected expenses. However, knowing what you should do is very different to then actually taking action, particularly when it comes to money.
69% of us have less than $1,000 in savings for an emergency.
It’s important to ensure that you are taking action to build up your savings over time. An emergency fund is effectively a best friend – there for you when you need it and supportive in difficult times. It’s time for you to take some steps towards making your new BFEF or best friend emergency fund a reality.
Here’s 5 steps to build an emergency fund:
1. Open a dedicated savings account
It can be difficult to save money if it’s all in the one account and you’ll spend it until it’s gone. Instead, try opening a dedicated savings account so that you are tempted to touch it. You can set up a regular automated transfer to this savings account to stay disciplined. A savings account with a decent interest rate will also have money from the bank topping up your savings each month.
2. Set a savings target
A savings target for your emergency fund is useful in having a number to aim for. Starting with $1,000 as your initial goal is achievable for most people over time. Celebrate your savings goal when you achieve it and then aim for another stretch target such as saving 3 to 12 months of your living expenses. Make sure you pick a savings goal that’s meaningful for you so that you’re more likely to achieve it.
3. Build it into your budget
If you’re struggling to save money, knowing where your money goes is crucial. There are multiple ways to budget, including a budget app if you use your phone all the time and are more likely to use an app than a written budget. You can also budget to save a specific amount of money each week and ensure you meet your savings target.
4. Sell what you don’t use
We all have houses filled with items we simply don’t use. On average, we have 23 items we won’t use and a third of us procrastinate doing a cleanout. There are multiple ways to make some extra spending money, including making money by selling your second-hand clothes and make money from your wardrobe. We all clothes we will never wear again so why not turn that into cash you can actually use in the future.
5. Cut down on your expenses
If you don’t want to make money, you could try cutting back on your expenses. There’s multiple ways to save $1,000 fast, including cutting back on your everyday spending. If you’re keeping a budget, look at what you’re spending money on and see where you could save. This could include smaller items like cutting back on takeaway coffees you don’t value or saving money on your energy bills.
An emergency fund is insurance against life’s uncertainties.
It can difficult to take action but it’s important to make your emergency fund a reality. And once you hit your $1,000 target, celebrate and then aim for your next savings goal. If you’re feeling unmotivated, think about the feeling of safety and security that comes with knowing you’ll be protected from future financial shocks.