Emergency funds can be your cushion that can keep you afloat in a time of need without having to resort to credit cards or high-interest loans.
Only a few things in this world can help you relax as much as having a big pile of cash in your emergency fund. The more money you set aside for unexpected events, the better protected you are from getting into debt.
1. What Is an Emergency Fund and Why Do I Need One
An emergency fund is a money you set aside to pay for unexpected expenses, which are often large. By nature, they are sudden and unforeseen and can easily get you into trouble. These expenses can be unforeseen medical bills, major car fixes, or when you need to repair or replace a home appliance. In 2020, many people found themselves needing emergency funds as unemployment rates skyrocketed. According to a January survey by Bankrate, only 39 percent of Americans could cover an unexpected expense of $1,000 from their savings. Not being able to pay for emergency expenses can lead to being overwhelmed by debt and a pile of unpaid bills that will kill your credit score.
The benefits of having an emergency fund are obvious: you get to sleep peacefully at night knowing you will be able to handle whatever life throws at you. If you lose your job, you know you will be able to pay for your household bills like your landlord, electric providers, and buy food.
2. How To Start and Save for an Emergency Fund
You will breathe with more ease when you save $1,000 and a lot easier when you have three to six months of your living expenses aside. When Murphy comes calling, your emergency fund is your cushion that will keep you afloat until times get better, because they will get better.
Old toys, a treadmill you haven’t used since you bought it, a book you don’t plan on reading again – these can all be converted to cash. You can sell a ton of stuff online and you’ll be surprised how quickly $5-$10 can add up.
Get a side hustle
These days, getting a side job is as easy as it gets. You can care for a pet while its owners are away, you can walk someone’s dog or you can do a ton of different jobs online thanks to platforms like Upwork. If you love to write, you can earn some extra money out of it. You can capitalize on your talents such as sell your photos if you are a gifted photographer or give ballet or piano lessons. All you have to do is think about what you are good at and even your hobby can be converted into an additional source of business income.
Trim your expenses
As obvious as it might seem, making budget costs does not have to be that painful. Sometimes, it does not require a sacrifice at all. For example, when was the last time you reviewed your internet, phone, and utility providers? With so many price comparisons sited online, you can easily check to see if you are getting the cheapest rate there is. You can double your savings if you adopt energy-savings habits such as unplugging your devices when they are not in use to avoid phantom loads that only add up to your electricity bill. Next, you can save a significant amount of money on food if you plan your meals ahead. If you go to the supermarket with a list of groceries, you will be less tempted, and a meal plan will make sure that you will buy only what you will eventually eat. Minimizing food and waste is good both for your planet and the overall planet.
If you want to save money aside for your rainy-day fund, you need to commit to it and that means prioritizing savings. You cannot afford to leave them as optional. Commit a fixed amount for savings, just like for any other fixed expense.
If there’s anything certain, it’s that life is filled with uncertainty. Change is the only constant so the only way to feel relaxed is by building up the emergency fund that will allow you to enjoy the ride called life.