Prepare yourself for the future by building an emergency fund
We all know what it’s like for something unexpected to come our way. Just when we thought we were on the right path, some emergency comes up and stops us in our tracks.
Whatever comes next, there’s one thing we can be sure of: when you’re facing hard times, and you have to make difficult decisions, having some cash put aside can help keep your options open.
Money isn’t everything, but if your costs are covered it can make all the difference. When you’ve got an emergency fund, you can focus on dealing with the important stuff instead of stressing about money.
Why should you build an emergency fund?
Take some time to think about why you might need an emergency fund. For example, what would you do if you lost your income, or if an illness meant you couldn’t work or study? What would you do if you had to find somewhere else to live?
It’s never much fun to think about what might go wrong, but if anything ever happens you’ll be glad you took the time to plan ahead. The more thought you give to the future, the better you’ll be able to prepare — and the better off you’ll be if you find yourself facing difficult times.
What’s the right size for an emergency fund?
An emergency fund should cover at least three months of expenses. That means you can keep on paying for the essentials, even if you lose your income. If you need to find a new job, or a new place to stay, or to deal with some other emergency, your emergency fund will be a buffer.
If you can, try to save up six months' worth of expenses. The bigger your emergency fund, the better. That way, you’ll have more space and the time to sort things out when you need to get back on your feet.
How do you build an emergency fund?
To build an emergency fund, you’ll need to have a basic budget. A budget is a record of how much you earn, how much you spend, and how often — without knowing those details, you won’t know how big your emergency fund should be. You’ll also be unclear on how much you’ll be able to put aside, or how often you’ll be able to do it.
If you need a hand getting started with budgeting, take a look at Blackbullion’s Budgeting Pathway. If you’ve already got your budget set up, the next step is calculating how big your emergency fund should be. Take a look at your monthly expenses, and figure out how much three or six months of expenses would be.
Once that’s done, you’ll need to decide how much you can put aside in your emergency fund, and how often. If you can, take a look through your budget and try to find ways to reduce your expenses or boost your income. That way, you’ll have more cash to stash away until you reach your goal.
What other tips can help you build your emergency fund?
Once you know how much you need for your emergency fund, and how much you can put aside, and how often, set up a separate account for your emergency fund. Then, set up an automated payment from your main account.
When you’ve got your emergency fund in a separate account, you won’t be tempted to touch it when you don’t need it — and when you’ve got automatic payments set up, you’ll be putting money aside without even needing to think about it.
Building an emergency fund can take time, and it might mean making some sacrifices to get there — but once you’ve got that money saved away, you’ll have the peace of mind of knowing that it’s there if you ever need it.