Setting Up an Emergency Fund
- Haven House
- Mar 25, 2019
- 3 min read
You may not want to think about a disaster happening to you, but it is better to prepare for one than to be caught off guard. Setting up an emergency fund is a great idea because it insulates you from, well… an emergency. It is not like a typical savings account where you can use it whenever you run low on money or want to splurge a little. It is there in case something bad happens. If your car breaks down and you need a quick repair. An appliance stops working and you need to get it fixed. Or worst case scenario, you have to go to the hospital and need to cover the bill. An emergency fund will help you in a pinch and can prevent you from falling into serious debt.
So how do you start this new journey of setting up an emergency fund? What if you don’t have a ton of extra income to put a side? Not to worry, there are a few small steps you can take in order to prepare for a situation that may arise.
1. Set a goal. Figure out how much you need to save. It can be hard to figure out how much is enough but SaveandInvest.org says, “An emergency fund should cover three to six months' worth of realistic living expenses.” Another article from The Balance says that an emergency fund with anywhere between $3,000 and $6,000 is a good place to start.
2. Save, Save, Save! Set aside any change you collect. If it’s a few cents or a few dollars, putting it into a rainy day jar can help you save quicker. Once the jar starts to get full add it to to emergency fund and watch it grow! If you have money left over in your paycheck you can use that, but if your check goes to living expenses, look for way to cut back and save. And once you hit your goal the rainy day jar can become your fun jar! There are also savings app that will put your change into a dedicated saving fund automatically. For more information about savings apps click here.
3. Double down. If you are able to, find or start a side hustle. An extra job can help you add money into your emergency fund even quicker. Your tax refund is a great way to build a foundation for your emergency fund as well. Selling unneeded items around the house can also help you reach your goal. Facebook Marketplace and eBay are great platforms that can help you get rid of unneeded or unused things for some quick cash.
4. Put it where you can reach it. Once you start saving you won't want to keep that much money just laying around. A simple savings account is a great place to keep it. You won't want to put it where you will be tempted to dip into it, but it can't be impossible to get to it in a hurry. If an emergency fund happens you will need to be able to withdraw the money when you need it.
5. Work it. Once you figure out how much you need to save, how to save and where to put it, you want to stay consistent with it. Saving for one month might not allow you to have enough money to cover your expenses. It is also better to be over prepared than under prepared. After a few months, revisit your goal and check to see how much you have saved.
Leave us a comment of what works and doesn't work for you!
References
Anspach, D. (2019, March 18). Emergency cash reserves and how much money you should set aside. Retrieved from https://www.thebalance.com/how-much-should-i-have-in-my-emergency-fund-2388353
Start an emergency fund. (n.d.). Retrieved from https://www.saveandinvest.org/military-everyday-finances/start-emergency-fund
Tierney, S., (2017, November 30). Emergency fund: what it is and why it matters. Retrieved from https://www.nerdwallet.com/blog/banking/banking-basics/life-build-emergency-fund/
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