When it comes to your finances, you can never take any chances. This is why most experts urge everyone to build an emergency fund. In fact, this is the first step to financial freedom. When you lose your job unexpectedly, you need a financial cushion to fall back on. By building an emergency fund, you are essentially protecting yourself from any drastic financial disaster.
To help you set up one, here are three steps you can follow:
Start with the amount
You need to start by determining how much emergency fund you will need. Ideally, you should have at least three months’ worth of your monthly expenses. Once you hit the three-month mark, you can aim for six months to a year. The goal is to save enough to so you’ll have something to use when you lose your job or when you’re faced with unexpected expenses.
Set up an account
Your emergency fund needs to be set up on a separate account from your checking and savings account. It shouldn’t be easily accessible like your regular debit account but it should be accessible enough for emergency purposes. A good recommendation is to put your money on money market accounts because it offers a higher interest rate plus you can withdraw and write checks making your funds easily accessible for emergencies.
Make savings automatic
One of the best ways to save for your emergency fund is to make it automatic. Determine the amount you want to set aside for said fund and set up a direct deposit scheme so you won’t have to worry about transferring money from one account to another. When saving for emergency funds, it is wise to start off small then gradually increase the amount as you go along month after month.