How to Build an Emergency Saving Fund

ratewise logo - ratewise
by ratewise

Being a human, you never know when the emergency situation may affect you or your family. Every day we face different challenges in our lives. But facing any emergency situation becomes very difficult if we are not prepared for it. To overcome the situation more easily, a person should always have an emergency saving fund in the account just in case.

So firstly it is very important to know what an emergency saving fund is.

What is an emergency savings fund?

Basically an emergency saving fund is known as the savings a person has that could help them to survive any emergency situation. The emergency situation could happen in any form whether it is losing a job or a medical emergency, etc.

There are some people who are not willing to save and believe that money is earned to spend and tend to live in the moment. Such people need to know that emergency can happen to anyone at any point in your future.

You need to save it for even the smallest problems because you have no idea when a tough time is going to be coming your way.

Steps for building an emergency savings fund

To find out the ways to build an emergency saving fund, the following steps or decisions are there to help you with it.

1. Bank account

Now a days opening an account has become quite easy and it has proven effective and efficient in depositing your money. This option is one of the best decisions to be made for saving money for a difficult situation but make sure you choose the perfect type of account which is easily accessible to your cash.

Do not go for saving accounts where your money is frozen in place as the money is not easily accessible. This will not be of any use in times of need or emergency when you need access to your funds fast.

2. Pay off loans first

In order to save money for your emergency fund, you need to pay off your loans first. Always make sure that your emergency saving fund is free from any kind of debt, in case you need to pay immediately in an emergency situation, at least you will be free of tension for your loans.

You would surely know that you have no one else to pay and you can easily use your amount for coping with the situation.

3. Self-motivation

Self-motivation is one of the most important keys to overcoming any kind of emergency situation. You need to know that although relying on your community or family may help a little, it is ultimately going to be up to you to help yourself.

Keep tabs on your bank account and try to save a little every month even if it is 1% of your earnings. Remember that you cannot have an account full of money in a very short period of time. Everything takes time so think of the savings account as a long-term project. Save a little, but often.

4. Set your goals

Always set a prior goal and plan accordingly. It is very important to know that a goal without a plan is a goal of no use. Make sure you follow all the rules that lead to a successful achievement in an estimated time period.

For example if you are planning to pay for your home renovation or something that needs a good amount of money, you should set a goal that you know you can surely achieve within the expected time period.

How much money do you need for an emergency savings fund?

If you are worried about what the minimum amount for building an emergency saving fund should be, do not panic. We are here to help you out with this.

First of all it is very important to know that whatever amount of money you earn, you can save from it. It does not matter that you are saving a little but what matters is that you are saving as much as you can.

It has been recommended by financial advisors that these emergency saving funds should be equal to at least 3 months of the person’s salary.

You want to make sure you can pay for your essentials for three months in case you need that time to get back to working. In order to spend in that difficult period, you want to make sure you can cover basic expenses like rent, bills, and groceries.

It is very important to understand that savings take times and if you add small amounts gradually it will grow to a larger amount.

In short you should have the capacity from your earnings to save for any emergency situation that could happen anytime or anywhere. Your earnings can only prove beneficial when it is being used in the times of sudden need.

Read More

Categories: Personal Finance
Tags: How To