So, you want to get out of debt? But you do not know how? Well, every journey starts with the first step as a famous Chinese philosopher once said, and one of the first steps you need to take is setting aside money for a rainy day. But the question is setting up emergency fund how to start? Actually, you can do it in a number of straightforward steps
Why Do I Need an Emergency Fund?
But why do I need an emergency fund in the first place? An emergency fund is important to clearing your debt. In fact, it is one of the first steps you should take in clearing your debt and one of the reasons you will get out of debt at the debt at the earliest possible opportunity.
Because by setting up an emergency fund you will be able to pay for unforeseen circumstances such as a car breakdown or a leaking roof in your house. You could have a sudden need for a dental or medical emergency? These are things for which you simply cannot plan. Events like this should never come out of your normal savings. If they do, you most likely never get out of debt.
Opening an Emergency Fund Savings Account
The first thing you need to do is open a savings account specifically for your emergency fund. This should be completely separate from any of your other bank accounts. Find a financial institution offering the highest possible interest rate if you can. If this is not feasible simply open a current or checking account. If your financial situation is so dire no bank will touch you, put your money under the proverbial mattress or in a piggy bank. Either way you need to keep this money aside.
How to Start Your Fund
Starting an emergency fund takes discipline and commitment. No matter how small your income is you need to put cash into your fund. Start by putting aside 10% of your earnings each week. If you are earning $500 a week, save $50. Even if you were only earning $100 a week for example, save $10. No matter how meagre your resources you need to grow your fund.
It is amazing how unimportant things build up into much bigger things, once you have the determination and the will. Initially starting out, it is advised you put from three to six months expenses into your emergency fund. This can be difficult but the more you have saved the more you can prepare for unforeseen circumstances.
What are your expenses? Well, you can work this out with a written budget. Actually, you should treat as just another expense, like your electricity or grocery bill. But rather it is an expense where you are not paying your benefactors, you are paying yourself first. Paying yourself first is one of the first rules of financial independence.
Tips to Grow Your Fund
- When you reach six months of living expenses saved, increase the amount you are putting aside to 15% of your income. This should now be possible as you are now attuned to the savings habit.
- Make sure there is no debit card attached to your emergency fund account. Debit cards are too easy to make withdrawals from. Without a card you will have walk into the bank to withdraw, less likely.
- Automate your emergency fund contributions. Put the same minimum amount of cash into your fund every week or even month. This way your account will grow exponentially
- If you receive an income tax rebate or bonus at work, put two thirds of this money into your emergency fund. The rest spend on yourself as a reward. There is no point in denying yourself everything.
- Look for ways to boost your income and put the extra savings into your fund. You could sell on eBay or Etsy, items from around your house. Or you even get a second job. Do everything you can to bolster your emergency fund.
What Not to Do with Your Fund.
Remember your emergency fund is not for day-to-day spending. It is not buying what you want at the local shopping mall. Your fund is for exactly that, an emergency.
Buying a present if you have been asked to a wedding is not an emergency. Neither is taking the money out of your account to go a concert an emergency. Just because you might need it for food and accommodation.
If you need the money for these events find another way to get it or go without. It is a simple as that. Of course, events like weddings or concerts do not suddenly appear on the horizon. You normally have time to plan for them. Plan by cutting down on unnecessary expenses weeks or months in advance.
The Psychological Benefits of an Emergency Fund
The psychological benefits of having an emergency fund should never be underestimated. For a start it will boost your financial confidence. You be better prepared for any unexpected outlays that arise and they will arise, you can be sure of that.
There are not many events in your life that could be as bad as an unexpected financial outgoing. Like when you receive a bill and your electricity is about to be cut off, or when your landlord is about to throw you out because you have not paid your rent.
Of course, this kind of crisis can easily be avoided with proper financial planning elsewhere. But if it came to the crunch and you have no choice, the option to draw on your emergency fund will save you an awful lot of stress.
Also, the knowledge of having a financial safety net will help you develop a money saving mentality. It will also prevent you from making rash financial decisions. Overall, you will gain peace of mind and many a better night’s sleep thanks to your decision to open an emergency fund.
So now it is up to you. Starting an emergency fund on it’s own will not get you out of debt. But it is an important first step along with the other first steps on you can take on the road to a life free from debt.
Let me know what you think in the comments.
Thanks for your blog, nice to read. Do not stop.
Наркологическая клиника с доказанными методами лечения зависимости
наркологическая клиника https://narkologicheskaya-klinika-spb-0.ru/ .