Emergency Funds – How to Build Your Emergency Savings
We have all experienced unprecedented financial situations that made us realize the importance of having an emergency fund. Whether it is sudden job loss, unexpected medical expenses, or a fender bender, these unplanned expenses can throw us for a loop. Being unprepared for these emergencies can make us feel like our whole life is spiraling out of control. For this reason, having an emergency fund to fall back on is absolutely crucial for every woman out there. It is a way for them to protect themselves in the face of financial difficulties.
Imagine having a safety net when something unexpected happens to you. It would feel great knowing that you are secure in the face of a life crisis. No matter how tough times get, your emergency fund can provide you with a sense of security. The COVID-19 pandemic has reinforced the importance of having emergency savings. With major job layoffs across the world, everyone has come to realize how important it is to keep their head above water.
Finding a way to save for an emergency fund is something that most people find difficult. Therefore, I have written this article to help women build an emergency fund, come what may.
Table of Contents
What is an Emergency Fund?
An emergency fund is the money you save for unexpected life events, such as:
- Job loss
- Car troubles
- Unplanned medical expenses
- Unexpected house repairs
An emergency fund takes care of you and your loved ones when life gets difficult. It provides you with the peace of mind you deserve and allows you to come through emergencies triumphantly because you know you made the right choice. You can sleep easily knowing that you have created a safety net to protect you and your loved ones.
It is also a great way to avoid going into debt and keep yourself financially safe.
Why Emergency Savings Have Become More Important Than Ever
The Covid-19 pandemic has been a huge lesson about unexpected situations. Many people lost their jobs and sources of income and economies crumbled under the pressure of the lockdown. According to a survey conducted by Forbes in April 2021, the pandemic caused 73.3% of people to use up half or more of their emergency fund and 29% to use all of it.
Many people have started building Covid emergency funds. As a result, everyone wants to know how much they should save for their emergency fund to deal with life events that span a long period such as the pandemic.
How Much Should I Save for My Emergency Fund?
When it comes to determining how much you should save, start slowly. Most financial experts recommend a minimum emergency savings of three months’ worth of salary. However, that largely depends on your particular income and expenses.
In any case, the first step should be to determine the amount you want to save. This should be based on how much your living expenses are. Consider things like:
- The number of people in your household
- The number of people in your household that earn
- The minimum amount needed for you and your family to cover basic expenses
You can either set a certain timeframe for your savings, such as saving for three to six months, or you can choose a particular amount you want to have saved. For instance, each earning member of your family can start by setting aside 10% of their monthly income for emergency fund purposes. More money can be contributed by members who receive a promotion or a bonus for their work. Instead of splurging, that money can be put into the emergency fund savings to make the family’s collective future safe and secure.
How to Save for an Emergency Fund
1. Create a Budget – Track Your Monthly Income and Expenses
Emergency funds are a smaller part of something bigger: your budget. Using my Money Planner for Her will provide you with a template to create your budget. It will cover everything from tracking your income and expenses to building your emergency fund savings.
You can start by reading my book Financial Planning for HER, which helps familiarize finance amateurs with basic financial terms. You can then use the Money Planner for Her to record how much money comes in and how much is spent every month. This will provide you with a full picture of your finances. After that, you can start finding out how much to save for emergencies.
2. Find the Money to Save for Emergencies
Go through the list of things you normally spend money on that are not your needs. Write down how much you spend on those things. Then, consider how you can eliminate or reduce those expenses.
Conversely, you can find ways to increase your income so that you can save more. Find ways to create multiple streams of income to build your emergency fund. The more money you earn, the more you can add to your emergency savings.
3. Set a Monthly Savings Goal
Your monthly emergency savings goal will help you gradually build your emergency fund. Instead of setting a big goal, start with setting a monthly goal to set money aside from your income for your emergency fund.
Setting a small monthly goal will stop you from getting overwhelmed and help you stay consistent with your savings plan.
4. Develop a Plan to Start Your Emergency Savings
Once you have set your monthly goal, it is time to develop a plan to achieve that goal. This means creating measurable savings targets to hit.
For instance, you can set a goal to save $25 weekly to save a total of $100 per month. For a detailed look at how you can create effective money-saving habits, take a look at this article.
5. Adjust How Much You Can Save
As you go on in your journey to save for your emergency fund, you will have to make necessary adjustments. Ideally, you should aim to save more than before as time goes by. Be sure to refer back to your budget regularly and see where you can add more savings.
If you have a household with multiple earners, see how everyone can contribute.
6. Stick to Your Emergency Fund Plan
Once you have set your goals and developed your plan, it is time to stick to them. This is the hardest but the most important part of saving for an emergency fund. For this reason, you should always aim to create goals that are attainable and realistic. Aiming too high can create unnecessary roadblocks to your financial goals.
A good way to stay consistent is to save automatically. This means setting up automatic transfers from your checking to your savings account every month. Lastly, always keep your emergency fund savings separate from all other accounts.
Further reading: How to Achieve Your Money Goals
When Should I Use My Emergency Savings?
While building an emergency fund is important, what is crucial is not spending it in the wrong places and at the wrong times. You must create a distinct boundary between what constitutes an emergency and what doesn’t. Not every unexpected expense is going to be an emergency. Before you decide to use money from your emergency savings, ask yourself the following questions:
- It is unexpected?
- Is it necessary?
- Is it urgent?
If the answer to the above questions is yes, then your emergency spending is justified.
To Sum Up
An emergency fund is an essential building block of financial stability. It should not be ignored or delayed as that can have detrimental consequences. Starting to save for an emergency fund can seem like a daunting task. However, it doesn’t have to be like that. Everyone can start building their emergency fund with the right tools at their side.
I suggest using my Financial Planning for Her and Money Planner for Her to help you get started and simplify your savings journey. It contains free tools to help you learn the basics of finance and put that financial knowledge into practice. Using the planner in conjunction with the useful budgeting tips on my financial blog, you will be unstoppable!
If you enjoyed this article on Emergency Funds – How to Build Your Emergency Savings or have any questions for me, please feel free to leave them in the comment section below!
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