Heat of Summer is Rolling In: The Significance of an Emergency Fund
An emergency fund is a specific amount of money that you set aside for periods of uncertainty or suffering. One example is your HVAC breaking in the middle of the summer. Many people don’t even know about the significance of emergency funds until something breaks. Then, once people realize how often disasters, damage, or other inconveniences can strike at any time, preparedness becomes a crucial part of their lifestyle.
When to Build an Emergency Fund
Get started as soon as you feel you have both feet on the ground and can afford to set aside a little toward the fund.
Fortunately, emergencies do not happen every day. Therefore, there’s no need to go out of your way to set aside tons of money. Instead, small or reasonable amounts every month will suffice. The idea is to ensure that you will have somewhere to start when the unexpected happens. Over time, those small contributions will add up to a substantial amount of money.
How to Build an Emergency Fund
As soon as you decide to save money for an emergency, the first step is to open a savings account with your financial institution, specifically for that purpose. Once you have opened the account, you can make the deposits when it suits you. You can do this every month.
Piedmont Advantage Credit Union has a Personal Savings Account Service that allows you to decide what you will be saving towards whether that is emergency funds, a new roof, summer spending, new HVAC savings, whatever you want.
How Your Emergency Fund Can Grow Quickly
Steps can be taken to make sure that your emergency fund grows at a fast pace. But, of course, it can only work if you are still receiving a steady income. If you have lost your job, or the income you are receiving at the moment isn’t enough, it’s understandable that you may need to wait or grow the fund at a slower pace.
Growing the emergency fund at a fast pace starts with creating a budget and analyzing money habits. How have you been spending your money?
Creating a budget and changing money habits are great ways to build an emergency fund and be prepared if the unexpected happens again.
Ways you can Budget to build your Emergence Fund:
Give up Luxury for a Month
Building a cash cushion may seem impossible with a small paycheck, but saving even $10.00 a week can add up over time. You may not want to sacrifice a luxury like daily lattes or expensive nights out forever. As an alternative, forgo them for a short period and channel the extra cash into an emergency fund. Then, next month, you can switch your luxury expense to something else.
Saving money doesn’t just support your emergency fund, but has other benefits. The amount of money you save, while modest, can be the difference between paying for groceries in cash and putting them on your credit card, which will cost you more money in the long term through interest.
Start Making Money on the Side
One way to take the pressure off a small paycheck and increase your savings is to pick up extra work outside of your normal job. This might be selling items online or driving for a rideshare company. Ideally, it should be flexible so you can commit more or less time to it depending on your needs. Any money you earn can be deposited into your emergency fund.
Keep it Close… But not too Close
One of the most important aspects of your rainy day fund is where you keep it. If your fund is lumped up in your checking account, or sitting in your wallet in the form of bills, it can be too easy to spend.
An emergency fund should be easy to access for emergencies, but not so easy that you dip into it for normal expenses. Perhaps the best option is to add it to your normal savings account, as long as you can resist the urge to withdraw it on a whim.