Are you looking for a strategy to save an emergency fund from scratch? Emergency funds can be a lifesaver in the journey to financial freedom. If an unexpected financial event comes up, and emergency fund may literally save your financial life. if you’re wondering how to build an emergency fund from scratch, check out the tips below for more information.
In the article below, you’ll read 5 tips to help you build your emergency fund from scratch. These tips will help jump start your emergency fund with simple exercise you can start doing today.
What is an emergency fund?
An emergency fund is a fund set aside solely for the financial surprise expenses life sends your way. These expenses can include anything from a surprise medical or dental excuse, to unplanned non-routine car repairs, unexpected home repairs, or unplanned and unexpected travel.
Unplanned expenses are one of the few things you can count on and an emergency fund is one of the ways you can make those expenses less traumatic. Here are a few ways you can build an emergency fund starting from scratch.
1. Know your current income and expenses
The most important part in getting ahead is knowing where you currently stand. By tracking your current income and expenses, you can start to get an accurate picture of your current financial situation. Once you have an accurate picture, you can begin to see areas where you can make adjustments to build an emergency fund.
Financial clarity is one of the best steps you can take toward financial independence.
2. Reduce expenses when possible
Although cutting expenses is difficult, it is a very effective way to build a stronger financial future. Simply being aware of your expenses may lead you to naturally reduce your spending in certain areas.
Awareness of your current situation is a great step toward building an emergency fund, starting from scratch. Simply knowing your current financial details is a big step toward making positive changes. Many times, these changes will happen naturally once you realize where you are relative to your financial goals.
For example, if you’re prone to mindless spending (on anything from takeout food to unnecessary items) you may naturally realize that your financial independence takes priority over this type of spending. You may even naturally take up hobbies or activities that bring in additional income.
3. Bring in extra income
Bringing in extra income is a great way to build an emergency fund starting from scratch. There are several side hustles you can start to generate extra income. Start by considering activities you already enjoy doing and then thing about potential ways you might be able to monetize these activities. For example, you might enjoy baking. Why not consider a side hustle of offering baked goods for sale?
Earning extra income is a great way to build an emergency fund from scratch and very quickly too. If you’re starting a new side hustle, why not ear-mark all your earnings straight into your emergency fund until you reach your target amount? That way you can build up your savings and create an extra stream of income as well.
4. Set up a separate account
As you’re building your emergency fund, it’s a good idea to stash that money in a separate account. If you don’t see the balance it’s much easier to let that amount grow on its own. As the saying goes: “Out of sight, out of mind”. If you don’t see the money, you will be less tempted to spend it on situations that aren’t truly emergencies.
Especially when combined with an automated savings plan in the next step, it’s a great idea to hold your emergency fund in a separate account. You can even choose a small interest bearing account that gives you a small return as you build your emergency fund builds. However, keep in mind that the main purpose of the emergency fund is to be liquid and available for use should an unexpected expense arrive.
5. Automate contributions to your emergency fund
Automating contributions is a great way to make sure that your emergency fund grows. When you automate a contribution, you eliminate the burden of saving and allow yourself to save for these future expenses automatically with no additional effort.
For example, if you have a paycheck that is deposited into your checking account, set up a savings account in a separate bank entirely, then automate a regular contribution into this separate account.
Start with å small and then increase the amount gradually. You might find that you don’t even miss the smaller amount and that you build an emergency fund from scratch almost behind your own back.
Bottom Line:
Financial emergencies happen! Start today to build an emergency fund to handle those unexpected expenses.
For more information:
Check out this video on an emergency grocery budget.
Read More:
How to Start an Emergency Fund
Good tips Christianna. All too many people can’t cover an unexpected expense. Gotta start somewhere. 🙂