Building an emergency fund is an essential part of financial planning. Here are some tried and tested steps to follow to build an emergency fund:
- Determine how much you need: The first step is to determine how much money you need to save. The general rule of thumb is to save at least three to six months’ worth of living expenses.
- Set a savings goal: Once you know how much you need to save, set a savings goal. You can break this down into smaller goals by saving a certain amount each week or month. CHECK OUT: Some of my Favourite Money Saving Tips
- Create a budget: Creating a budget will help you identify where your money is going and where you can cut back. This will free up more money to save towards your emergency fund. CHECK OUT: 10 Practical Budgeting Tips
- Open a separate savings account: It is best to keep your emergency fund separate from your regular savings or checking account. This will help you avoid spending money on non-emergency expenses.
- Automate your savings: Set up automatic transfers to your emergency fund savings account. This will ensure that you are consistently saving towards your goal.
- Save windfalls: Whenever you receive a windfall such as a tax refund, bonus or gift, consider putting a portion or all of it towards your emergency fund.
- Be patient: Building an emergency fund takes time and discipline. Be patient and stay focused on your goal.
Remember, an emergency fund is not a luxury, it is a necessity. Having money saved for unexpected expenses will give you peace of mind and help you avoid going into debt.
