How To Save For An Emergency Fund – All Things You Need To Know!

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We all know how important emergency funds are. But many still question –  how exactly to save for an emergency fund?

Especially when you’re already tight with your budget. 

But saving for an emergency is crucial for every person and family. A lot has been financially saved by this fund when it comes to unexpected bills and payments.

If you don’t have one yet, I really suggest that you start immediately. I won’t be the only one that will encourage you to do this but a lot of the other more established financial gurus will tell you to do the same thing too.

Emergencies happen when we least expect it. The only way to prepare for it is to have an emergency fund to cushion it.

If you’re looking to start one right now, you’ve clicked on the right post cause I’ll be going through basically all thing you need to know when it comes to saving for an emergency fund.

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How To Save For An Emergency Fund – All Things You Need To Know!

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A lot of people have different opinions about personal finance.

Even the “pros” will have contradicting opinions on this vast topic of money.

But do you know what aspect of personal finance most people agree on?

It’s having an emergency fund.

Not being prepared and ready for an emergency can drag your finances drastically. Your investments and savings could be affected. 

Since this can’t be avoided what we can do is prepare for it. 

Saving for an emergency fund is very beneficial in the long run. You might not appreciate it now but when an emergency happens you’ll be thanking yourself for putting aside money specifically for it!

Trust me, I’ve been there numerous times.

What’s An Emergency Fund?

Well, an emergency fund is an account solely used to cover expenses that came from unexpected situations.

Emergency funds are not to be confused with extra money that can be used for vacations, buying a new house, buying new sneakers, and the likes.

That’s where some people go wrong.

They think that their emergency fund is extra money for them to use for personal needs. 

If people do this, they’ll find out sooner or later that their emergency fund will come out short!

This is the very reason why emergency funds should only be used for emergencies ONLY.

Why Do You Need An Emergency Fund?

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Other than the fact that it’s the only way to financially prepare for emergencies, this fund can cushion any financial blow that you might encounter.

And I’m sorry to break it down to you, but you WILL encounter some financial emergencies every now and then.

It can also serve as a buffer when an emergency arises so you won’t have to turn to your credit cards or loan at the bank. 

Another reason why I like having an emergency fund would be because it gives me peace of mind?‍♀️

That whatever emergency might happen, I’m financially prepared for it.

To some, this is what they feel as well. I mean, no one wants to pay for a medical bill that will take up 60% of your total savings – also, insurance but that will need to be on a whole ‘nother topic.

Or you saved up money to buy a new car but there’s something in the house that needs repair.

Think about the people who had a stable job and steady income but was laid off unexpectedly because of the pandemic. Imagine if they didn’t have any emergency fund, only a savings account. Where will they get the money for rent, loan, debt, mortgages, and daily living expenses? All of those things would consume your life savings on a daily basis.

As they struggle to find work again, they’ll have to see their savings go down for a while.

Do you now see the importance of having an emergency fund?

To further convince you, let me save you time and effort on where you’ll possibly get money if you don’t have an emergency fund:
1) Credit Cards

This is probably the first thing that comes to your mind if you don’t have enough money to cover unexpected expenses. 

Don’t worry it’s not just you. A lot of consumers turn to credit cards when they can’t pay for something at that moment – I’m guilty of this too, back then I had a high credit utilization.

Plus, if you use your credit card it will be another burden for you to pay it. It also comes with additional worries since it has interest and fees if you don’t get to pay on time.

When an emergency happens, especially a costly one, credit cards shouldn’t be your go-to!

2) Savings Account

Ouch! You saved all that money only to be used for a major car repair. It’s difficult to see our savings being reduced only to be paid for something that we could’ve prepared for. We could’ve used that money for something more important and fun!

3) Retirement Fund 

As much as possible we shouldn’t be even touching this account until we’re retired!

But yeah sh*t happens when you don’t get to prepare. If your retirement money is tied to an account that has fees when withdrawing before the end date, you force yourself to not fully maximize that account.

4) Loans

Just like credit cards, loaning from banks or p2p lenders can also have fees and interest charges. You can’t even get the money right away! They’ll have to check your credit scores and financial capabilities first!

Not preparing an emergency fund can only bring negative effects to finances and eventually your personal life. Being unprepared will only give you anxiety and stress!

It’s better to have something saved than nothing at all.

So, How Much To Save?

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Here’s my answer, 8 months of income should be enough.

But the answer of many would depend on your financial situation (which is probably the right answer ?)

If you don’t have much to maintain in your life and you live a frugal lifestyle, 3 months worth of expenses would do – which was what I’d started with.

Honestly, there are many variables to give a right and specific answer to this question.

You should look at your lifestyle, your debt, income, monthly cost, and the people who depend on you.

Other variables would be insurance bills, job stability, and other bill obligations.

I opted to save 8 months’ worth of income because it’s the figure that I’m comfortable with.

It makes me relax and confident if ever I encounter something that I consider as an emergency.

Some people might say that it’s too much but I reply back that there’s no written rule on how much you should save. I believe you should strive to save for an amount that makes you sleep better at night?

What The Pros Think

To Dave Ramsey, he thinks that if you’ve been on a secured job for years already, a three-month emergency fund is enough.

But if you have a family and you’re the only one who’s earning, a six-month emergency fund is a better idea.

For Ramit Sethi, he believes that you have to add up three to six months worth of:

  • Utility Bills (internet, water, electricity, etc.)
  • Rent
  • Car/home payments
  • Food/groceries

He also mentioned that you should account for all your living expenses. It doesn’t have to be exact, an estimate will do.

Tony Robbins said that if you don’t have an emergency fund, it should be your top priority!

Before investments, before paying loans, filing up that emergency fund should be first.

He also mentioned that most Americans have less than $1,000 in savings! Which is a shocker to me since emergencies usually cost more than that.

Tony also added if you don’t have three months’ worth of living expenses, your bonus from your job NEEDS to go to your emergency fund.

How To Save For An Emergency Fund 

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The process of starting an emergency fund shouldn’t be a hard one.

To make it simple and easy to do, I only made 3 steps on how to do it! 😉

1. Determine How Much To Save

First off, you need to have a ballpark figure of how much you should save for your emergency fund.

Is it 3 months of income? 6 months of it? Or 6 months’ worth of expenses?

You need to set a goal so you know how much progress you’re making. You can’t score without a goal and you can’t win without a goal.

2. Create A Budget

People usually take lightly the power of having a budget. They think that they can live on a budget just by winging it. 

They don’t have a list and they just try to remember everything that they spent on. This is a bad idea since our minds tend to forget small details.

To really feel the effects of a budget, you need to take it seriously. Write down your expenses – every single one of them, no matter how small.

Be as specific as possible when writing this. The more specific the better. Because this is where you’ll really see what your spending habits look like.

Now that you’ve written down all expenses in a month, check the list thoroughly on where you can cut back your spending.

If your answer is “you don’t know where”, I’m sorry girl, you gotta check again.

There are always 3-4 things that you can cut back your spending on. 

Once you’ve checked your list and decided where to save money, it’s time for you to decide how much of your monthly income will go to savings, investments, retirement funds, and emergency funds.

My budget could be different from yours. So make sure to allocate money on things you prioritize especially your emergency fund!

3. Work Towards Your Goal

Living on a budget might be hard at first since it’s something new to you.

But anything worth it doesn’t come easy.

If you go over your budget, look back at your list and check where you overspent. After reviewing, adjust the budget.

Try your very best to reach your emergency fund goal! The goal doesn’t have to be achieved after a month. It can be a slow and steady process!

If you want to get your hands on my FREE Yearly Budgeting Template that I use until today, you can grab it for FREE below 🙂

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Where Should You Put Your Emergency Fund?

An emergency fund should be stored somewhere that’s easy to access. 

Putting money on the closet might work but you run the risk of your money devaluing over time.

So the most viable option would be in a savings account.

Since you’re putting it on a savings account, might as well go for the one with the highest interest rate.

I personally like to put it into an account where it takes a few days to cash out or to an account that I can only withdraw through counters. It’s still liquid but just has that tiny barrier for me to easily access it.

When Should You Use It

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This will totally depend on you! An emergency for some might not be for you.

To help you decide, you can ask yourself:

  • Is it unexpected?
  • Is it urgent?

If the answer is yes to both then it might be an emergency.

Here are common situations listed by Experian on when to use it:

1) Job loss – A job would be the primary source of income for many. If you take this out of their cashflow, where will they get the money for their living expenses?

2) Home needs – Having to maintain a house can sometimes be costly when you’re not prepared for it. Roof leakage, water heater malfunction, and clogged pipes are common home repairs that one should prepare for.

3) Car repairs – Whenever my car maintenance bill exceeds the budget I allotted it for, I take money from my emergency fund to cover it. For Experian, they think the same way too.

They wrote that unexpected repairs may require you to tap your emergency fund especially if you use your car to work.

4) Medical expenses – This is one common emergency that all of us have. When you’re not prepared for big medical bills, then most probably you’ll resort to getting debt.

Having an emergency fund can rid you of the stress and burden that debts will give you. Trustttt me, you don’t wanna not be able to sleep at night thinking of where to pluck money.

How To Reach Your Financial Goal Faster

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This section is only applicable to people who want to save more money faster. The ways below require time and effort. 

If you’re not in a rush to fill up your emergency fund, then you can consider the ways below as a way to increase your savings!

a) Spend less 

This is probably the most obvious way to reach your financial goals faster. You also do this by living on a budget.

Another way to do it would be to live frugally. Some people portray a lavish lifestyle but behind it is debts. It’s better to live a simple life with no debt and being financially stress-free!

b) Sell Things

When I want to have an extra income for the week or month, I usually sell my old clothes and belongings. 

I am 100% sure that you also have items that only take up space in your closet and house. You haven’t used them for over a year already.

My personal rule would be if I haven’t used it for three months, I’m going to sell it!

c) Leave Your Credit Cards

Yes! You read it right, leave your credit cards. Sometimes we”re so dependent on cashless transactions that it gave us negative effects already.

Negative effects come in the form of credit card debt. 

Bringing a credit card to the grocery or mall makes you spend more than you should. Why? Because you’re not worried about being short in money when going to the cashier!

d) Bring Cash

Instead of bringing cards outside, cash is the way to go.

Don’t get me wrong, I love credit cards because it gives me convenience when I’m outside. But I always make sure that I only use my credit cards on important things.

Bringing cash instead of cards makes you, in a way, stick to a budget since you’re only dependent on the cash you brought.

e) Have A Second Job

Another no brainer, right? If you want to save more money, you need to spend less than what you’re making. To save more faster, you need to increase your income and maintain your spending.

There’s a lot of part-time and freelance opportunities on the internet right now! 

Online jobs are in demand because almost all businesses are trying to have an online presence.

Check out the best online jobs that you can apply for immediately! 🙂

Why I Love Having An Emergency Fund

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Having an emergency fund has saved me and my savings from a lot of unexpected expenses.

Sometimes no matter how “perfect” your budget is, there will be some expenses that will go over your expected amount. 

If you don’t have an emergency fund ready for that scenario, you’ll be forced to take money out of your savings.

When I quit my 9-5 job, that’s where I really felt the importance of saving for an emergency fund. It’s natural to feel somewhat scared and anxious when you quit your corporate job because you’ll be saying goodbye to a steady income and all those benefits.

But that wasn’t the case for me. It’s probably because I know I have a cushion to fall back to financially.

I saved up an emergency fund that could cover my daily expense without having to tap into my savings account. Other than that, my emergency fund took care of my car repair and maintenance. We all know how some car repairs can be really costly.

Even a trip to the dentist or the doctor’s clinic, I have my emergency fund ready if the bill goes more than what I’ve budgeted for.

Lastly, I love having an emergency fund because of the effect that it gives me psychologically. 

It makes me more relax and confident.

And I know you’ll feel the same way too when you start preparing for this fund.

It wasn’t an easy process but it also wasn’t that hard when trying to save up for an emergency fund.

It wasn’t easy at first since I needed to really follow my budget. Sometimes I would overspend and adjust my budget from time to time.

It wasn’t that hard because I know I’m doing these things for a better financial future. An emergency fund puts me in a better financial position.

Start Immediately

If you don’t have an emergency fund right now, I really suggest you start immediately. 

I’m an avid believer in saving up for emergencies and so are famous financial authors!

This fund will greatly help you in the future. You won’t probably feel the effects of it immediately, but if an emergency arises, you’ll be thanking yourself that you started as early as now!

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