Managing your finances can be intimidating. From balancing checkbooks to maintaining a budget, there are lots of details that need to be taken care of. Luckily, you do not have to be a financial guru like Gary Crittenden of HGGC to learn how to save money. Here are 5 easy tips for building an emergency fund:
1. Figure out how much you need. Life rarely goes exactly the way that you plan it. Having an emergency fund that you can rely on during emergencies or temporary unemployment is a must. The first step to building an emergency fund is to sit down and determine how much you need to save. Most financial advisers will suggest having at least three months of expenses saved in case of an emergency. If you currently have zero savings, it might help to start with small goals. Make an initial goal to save $500. Once you reach this milestone, go for $1,000 and work your way up to 3 months of savings.
2. Determine how you plan to save. You always want to keep your savings in a place where it is not easily accessible. This can prevent things like impulsive spending and using your emergency fund for non-emergency expenses. Call your local credit unions first and see what types of accounts they offer. Many credit unions have a special type of account, known as a cookie jar account, that is designed to help you save money. They allow you to make unlimited deposits to these accounts, but charge a small fee for making withdrawals. The penalty is designed to discourage withdrawing funds before the account matures.
3. Pay yourself first. One of the biggest mistakes that people make on their saving journey is that they fail to prioritize it. One of the easiest ways to avoid this pitfall is to always pay yourself first. This means treating your savings like a bill. Every time you get paid, place a certain amount away for savings before you spend anything. If you do not trust yourself to do this, you may be able to adjust your payroll deposit so a specific amount goes into a separate account.
4. Make some rules. Now that you have done most of the groundwork for your emergency fund, you need to define the term “emergency”. This step involves making a list of conditions that warrant a withdrawal from the emergency account. This may include things like car repairs, medical bills or expenses related to extended unemployment. Each time you wish to withdraw funds from this account, make sure that you review this list to ensure that your expense meets these conditions.
5. Take your time. Your emergency fund will not build itself overnight. It will take months of wise saving and spending to reach your goal. Do not get discouraged if you find that you cannot put away as much as you would like each month. Taking it slow and staying committed to your saving goal is what will help you arrive at your savings destination.
You never know what life is going to throw at you. You could lose your job or have an unexpected illness at any time. Having an emergency fund can help you get through these tough times. These 5 tips can help you get on the path to smart savings.