Intro
Launch the Ultimate Savings Challenge in 2025 with LoppZ! Build your 6-month emergency fund for unshakable financial security. Start today!
In the sand-shift sand of today’s economy, it is not only intelligent, but also for an emergency fund. This cushion provides a safety trap in unexpected situations such as sudden job loss, medical emergency or immediate home repair.
Financial experts usually recommend saving the expenses of living for three to six months. But how does one reach that six-month milestone? In this post, we’ll give you a few steps to help you build up that 6-month emergency fund.
What is an emergency fund?
And why is it important? Before we dive in the steps, let’s talk about what the emergency fund is and why this major financial decision is so important.
An emergency fund is a specified amount of cash savings that is separated for unexpected expenses.That is its one and only job. It could be used for home repairs, medical bills, or even cover you if you get laid off from your job.
An emergency fund is important for a few reasons. Having this savings can protect your investments. Instead of pulling from your long-term investments to solve a short-term crisis, you can use this dedicated account.
It can also give you peace of mind. Knowing that you can handle unexpected costs without going into debt, reduce stress and anxiety significantly. Finally, it avoids depositing loan.
Without savings dedicated to unexpected expenses, you can rely on a loan or credit card to pay for financial emergency situations yourself. It is easy to focus on your immediate expenses – buying groceries, paying hostage, pouring gas in the car, but completing this step is necessary for your financial welfare and safety.
Did you know, according to a Bankrate survey, nearly 1/3 of Americans don’t have any emergency savings and only 18% could live for 6 months off of the savings they do have? Life happens and an emergency fund can help keep you and afloat and out of additional debt during potentially stressful times.
So how do we go about building this? We need to build out an “emergency” budget. This leads us to the first step.
Step 1: Determine How Much You’ll Need
Before you can start saving, you need to know how much to save. Because your emergency savings is there to cover you in a worst-case scenario, it’ll be used differently than your usual budget.
- You don’t have to plan for restaurant expenses or shopping expenses. You’ll most likely be cutting out those frivolous costs while handling your financial situation.
Therefore, if you usually stay away from $ 4000 per month, you can stay away from $ 3000 in an emergency. Just remember that more is better and safer when planning.
How much money will you need to cover all your necessary expenses every month? Nothing is required, not forget to consider all debt payments, grocery items and bills, especially less frequent people such as annual insurance.
Once you have a number, multiply it by 6 (or how many months you feel is necessary), and this will be your target number for a fully funded emergency fund.
Dark breathing. First, this number will seem impossible to reach a large scale and impossible, but do not focus on it. The most important thing is that we now have a goal, and we can start working for it.
There is no special time that you have to build your emergency fund.
Some people may be able to get it funded within a few months, and for others it will take several years.
- Just remain consistent and don’t stop.Don’t worry about how much or how little you are saving.Determine the money you can save and start.
- This leads to our next step.
Step 2: Track Your Spending And Reduce Expenses
If you don’t already use one, try setting up a budget and tracking your money for a month or two.
This will give you a really good idea of where your money is going. Most people have the money to save, they just spend it before they can.
When you commit to a savings plan though, you’ll find more and more opportunities and extra dollars to put toward your fund. Tracking your expenses will allow you to reduce in some areas or eliminate some expenses all together.
Finding money to save in your budget takes a change in mindset. You have to take a critical look at your spending and cut so that you can move those dollars to your savings.
Some people may decide to eliminate all but one streaming service or even quit going to the gym and working out at home to save those dollars.
In really driven instances, some people may sell a car or refinance their home. Remember, this is an ongoing process, once you start looking for ways to save more money, you’ll find that more and more opportunities to save appear.
But what if you find you can’t save or cut anymore from your budget? Then, you’ll have to make more.
Step 3: Increase Income
There are two ways to affect the financial equation on how to make more money. We’ve just talked about one way, you can reduce expenses, but you can only reduce so far. At some point, you’ll need to affect the other side of the equation.
You’ll have to make more money. The beautiful thing about this is that there is no limit to how much money you can make, so this can supercharge your ability to get your emergency savings fully funded! Here are just a few ways you can use to make money: Sell Used Items – This might be the easiest way to get into making more money.
Most of us have many items we no longer use at home.The designer bag you never use, the exercise bike may be dust collecting, or old electronics gold mines.
Platforms such as eBay, Facebook marketplace and cragslist make it easy to sell items. Channel the channel directly into your either emergency fund. Part Time or Side Hustles – It has never been easier to pick up a part-time job or gig work.
Tutoring, dog walking, or delivering food are all possibilities with the opportunity to scale depending on how much time you can commit. Rent Out Space – If you have the ability, you can rent out rooms, garage space, camera equipment, almost anything as long as someone needs use of it.
Always keep your eyes open for opportunities to boost your savings. And as you do, you can set yourself up for more success by making all of the saving easier with the next step.
Step 4: automate your savings
The easiest way to save money is to make it a spontaneous part of your financial routine. Open a dedicated account that is different from your current checking account. This will make it less tempting to take money out.
Then, set up automatic transfers whenever your paycheck hits your account. This makes your emergency fund a priority and a non-negotiable part of your financial decisions.
This is also where its typically suggested you keep your savings account liquid, meaning it’s in cash, and fairly easy to get, generally in a high yield savings account.
- You don’t want to lock your funds up in home equity or a long-term CD. Don’t be concerned that your cash is not generating returns.
This is not an investment. This money is insurance; it’s there to help you in an emergency.
Step 5: Have A Plan For Unexpected Income
Getting money unexpectedly is always nice, but if you don’t have a plan on how you’ll use it or save it, your emotions will decide for you. So, you also want to think through how you’ll handle any additional income.
This could include getting a raise, a tax refund, or things like birthday money. Commit to putting at least a portion of these into your emergency fund.
Tip: Set Milestones
These 5 steps will help you to build out your 6-month emergency fund, and because we don’t know how long that will take you, the last thing we suggest is that you set milestones for yourself.
The prospect of saving several months’ worth of expenses can be daunting, so breaking down the goal makes it achievable. Here are some things that we suggest: • Consider set to set monthly savings goals and challenge ourselves to complete it and cross it.
• Celebrate milestone and celebrate a mini celebration to help maintain speed! • Review and adjust as required. Life occurs, and sometimes you need to stop, slow down, or even a dip in the fund.
Just re-commit and keep going! The construction of a six -month emergency fund at first glance may look like a Hercules. However, it can achieve the goal by breaking it into managed stages, and sometimes promoting your savings.
The peace and financial security of the mind provides that every effort makes it worth it.
So start today; you’ll be glad you took this pivotal step toward financial stability.
We hope you learned something new today; tell us, how long did it take you to fully fund your emergency savings? If you liked this content please consider liking and subscribing, it really helps us out, and don’t forget to hit that bell icon so you don’t miss out on new content.
