How to Prepare an Emergency Fund

Posted on October 18th, 2009 by Elaine

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Life is unpredictable. One moment you’re swimming in money, the next you don’t have a single penny in your purse. It’s very important for any individual to create an emergency fund in case difficult scenarios arise. For you to do this, here are some easy tips to follow.

Observe your spending habits. A lot of people don’t realize that their daily habits are the reason why they don’t have any money to spare. List down your expenditures daily and see which ones you can cut back. Do you need to buy a dress/shoes every week? Maybe you can bring your own coffee to work instead of buying it from Starbucks. The more you decrease your spendings, the more money you can put in your emergency fund. Here are more tips you can try to save money.
Plan and calculate the numbers. You need to do some planning and number crunching, so you’ll know how much you can set aside for your emergency fund.
- Determine how much money you make in a month. Make sure you subtract the taxes.
- Create a balance sheet and income statement so you’ll know how much money comes and goes from your bank account. This will let you find out how much you save and how much you spend.
- Save for retirement. You can ask your company HR to get money from your paycheck then put it in a retirement savings account, then give your paycheck to you. This will get one less thing off your mind.
- Find out how much should you save for your emergency fund. It’s advisable to save three to six months’ worth of your monthly expenses.
Create a budget. This will let you know how much money you want to save and how much time you need to complete it. Take in account all your necessary expenses, so you’ll know how long it will take before you save that amount.
Create an emergency fund bank account. It’s easy to get a savings account, and you’ll only need basic requirements. Begin with small deposits. Remember, reaching your goal amount will take time.
Ask the bank to transfer your money. Many banks today allow automatic transfer, where they take out a certain amount of money at a certain time in a month, then put it in your emergency fund. Don’t be too hard on yourself; if you can only save $15 a week, then it’s all right. The trick is to consistently and diligently do this. Soon, regular transfers will let you build a fund. You should also continue decreasing your spending habits. This way, you will increase the amount of money you transfer to your savings account.
Check out other ways to save. For example, Certificates of Deposits or CD will give you more interest compared to a regular savings account. The money you save will actually generate you more money.

Preparing an emergency fund is something you should be aware of. You don’t want to be left alone in the streets without any cash at hand, do you? Just follow these steps, and you’ll have peace of mind.