An emergency fund is something that everyone should have in order to secure that finances are taken care of in the event something unexpected happens. An emergency fund may also be referred to as a certain type of savings and you may designate your savings account to start establishing this fund.
There are several reasons why you may need this type of fund. Loss of a job, unexpected injury or car repairs could set you back financially if you don’t have money set aside. If you are working on credit repair, many credit repair companies will suggest that you set aside money for emergencies. The reason for this is mainly because you may not have access to credit cards or be able to raise your credit limit with an existing account. Here are five strategies for establishing an emergency fund and creating a nest egg for the future.
Set a reasonable goal
In order to make sure the right amount is being funded to your emergency fund, you need to take a look at the big picture of your overall finances. First, write down all of the income that you know will be coming in each month. List all of the expenses you have including utility bills, gas, household expenditures, mortgage and groceries. Any money left over after the bills are paid can be used for your emergency fund. Stick to a minimum amount and build from there until you reach your goal.
Cut back on extras
Be sure to cut back on all extras until you reach your goal amount. This means cut your entertainment bills and switch to free items, such as watching cable movies through wireless internet. Start clipping coupons for your next purchase and only buying expensive items on sale. Eliminate eating out until you have enough money to reach your emergency fund is also a good option.
Ask for help
If you are not the only person in the household, ask everyone to contribute a certain amount each week. This is a great way to teach children the value of a dollar and how to reach a financial goal. Have them do chores and contribute a certain amount to the fund. Explain to them the added security involved with having the emergency fund in the bank.
To make sure you are not tempted to spend your money as soon as you get your monthly salary, set up an automatic withdraw through your employer and your bank. This way, you won’t ever see the money pass through your hands and it will start improving your financial health greatly and your emergency fund will have grown considerably as well.
While an emergency fund is a type of savings account, be sure to keep your regular savings account and the fund separate. Your savings account should be used to build up household savings or for a specific event. Keep the emergency fund separate so you can really keep track of how much money you are putting toward your goal and how long would it take for you to reach it.
Following these simple steps will assure you have easy access to the cash you need, when you need it.