What do you do when you are faced with a financially costly emergency? Some people borrow money from friends and family while some rely on credit cards or loans None of these is ideal; having an emergency fund to tap into is the best option.
Putting aside money for urgent needs takes discipline but at the end of the day it will definitely beat costlier options like taking out online personal loans. These types of loans should be sought only for genuine emergencies and they shouldn’t be used as part of a long-term financial plan. The interest rates are very high and if you don’t pay back on time, other high fees will apply. This can easily worsen your finances in the long run.
Here are five ideas that can help you build an emergency fund.
Treat saving like a bill
Determine how much money you ultimately want to put aside and work out how much you can afford to save each week or month. Give yourself a due date and put aside that money religiously. If you need a partner or relative to hold you accountable, ask them to check in with you to make sure you’ve made the investment.
Trim unnecessary expenses
This may sound obvious but we often get so attached to certain products and services that we deem them necessary when they actually aren’t. Do you need to buy a fancy lunch every day or can you pack a sandwich from home at least two days each week? Can you skip the salon and do your own hair or nails some months? Cell phone bills, cable subscriptions and gym memberships are all things that should be reviewed. Maybe you can find cheaper alternatives to your current provider.
Earn extra income
If after reviewing your expenses and cutting out a few things you still think you need to do more, perhaps you should find a way to make extra money. Depending on your current job and lifestyle you may be able to take on extra hours at work or start a part-time job. If not, you can tap into your talents and make money from things you already enjoy doing. You can put your baking skills to work, make personalized craft items or pick up an online writing gig. You can also sell items which you have around the house but no longer use.
Get a coin jar and keep those singles
It’s OK to start small. Begin your emergency fund by putting any small coins you get into a jar. Make a vow not to spend $1 bills and stash them away instead. It might not seem like much at the time but at the end of a year, it can be quite a substantial amount.
Reduce transportation costs
If you absolutely must have a car, make sure it is as fuel efficient as possible. Try to carpool where possible with colleagues or use public transportation. You can also walk or bike if your circumstances allow for it. This will not only save you money but help you to keep in shape.
The importance of an emergency fund can never be overstated. The thought of saving a large sum is overwhelming and this can keep you from starting. However, if you start small and set achievable goals, you’ll be on your way in no time.