4 Steps to Building an Emergency Fund and Why You Need One

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emergency-fund

Vet bills, transmission problems, school expenses. Do you sometimes feel overwhelmed with unexpected expenses blowing your budget out of the water and causing you to go into debt? We get it. Even the strictest budgeter can be thrown off course by an unexpected bill. So how do you overcome this? Simply put you plan for the worst and hope for the best. We can’t do the hoping for you, but here at MoneyLend we can help you plan for unexpected expenses.

In finance terms that means having an emergency fund. If you have a tight budget already, building an emergency fund might seem like an impossible task. With these simple tips we know you can save an emergency fund on a tight budget. It’s not impossible. BUT we promise it’ll be worthwhile.

1. Set a goal

According to a survey by Bankrate.com only four out of ten Americans could cover a $1000 emergency with savings. Yet $1000 is a great amount to aim for. It’s substantial enough to give you that priceless feeling of security – which is the whole point of an emergency fund – and achievable at the same time. We’re not talking about 8 months of income here, just the lowest end of four digits.

2. Create and celebrate achievable milestones

If $1000 seems overwhelming, break it down to $100 increments.  Commit to saving $10 a week for ten weeks. Keep a chart somewhere visible to mark off each weekly milestone as you meet it. The point is that by aiming for small goals like saving $10 or $20 you can easily accumulate $100. Do that ten times over and you have $1000.

Find a frugal way to celebrate your achievements, like packing a picnic and checking out a new city park, as each milestone is bringing you one-step closer to financial security.

3. The How

So how to scrape $1000 from an already tight budget? There are only two ways. You either spend less or earn more. The simplest way to spend less is to reduce your consumption – of food, gas or any extras. Remember we’re only aiming for incremental savings here. $1 here, $2 there. It all adds up.

Call your cable company and negotiate a lower payment plan or cut it altogether. Walk rather than drive to errands that are closer than a mile. Switch out a couple of meals for the vegetarian alternative. You’ll easily save more than $10 if you put your mind to it.

As for earning more, there are a myriad of ways you can make extra cash including doing surveys online, taking part in focus groups ,mystery shopping or even taking on more hours in your traditional job.

4. Where it gets interesting

Once you begin saving regularly something interesting starts to happen. All of a sudden you will realize that you’re looking for savings throughout your day. Unsurprisingly, the flow-on effect from beginning to save is becoming a better saver. It makes sense that when you discover new ways of saving money and functioning in your life for a lower cost, you will question other expenses that you might not have previously questioned. You might start to think of other frugal ways of living like downsizing to a smaller home or a condo,  becoming a one-car family or growing your own vegetables.  Saving  is addictive like that, it breeds further saving and forces you to assess your spending with fresh eyes.  

Building an emergency fund isn’t going to be easy. You have to make a lot of changes to your life, including what you eat and how you live. Each purchase needs to be made consciously and weighed up against your goals.  You’ll probably hit some roadblocks and need to regroup. But don’t give up! Once you’ve saved an emergency fund you will have a huge sense of achievement and more importantly you’ll be able to deal with an unexpected expense without going into debt.  Plus you’ll have acquired one of the life’s most useful skills, knowing how to save money. That in itself is worth the effort.

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