Tips For Building An Emergency Fund

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If you have an emergency fund, it can help you avoid turning to credit cards or taking out a mortgage on your home when unexpected expenses occur. But what is an emergency fund? How do you build one? How much should you save a month? You’ll get answers to these questions and more in this article.

Save 10% of each paycheck

Once you’ve figured out how much money you can stash away every week and month, it’s time to get serious about saving. If this is your first time trying to build an emergency fund, consider setting aside 10% of your paycheck as a savings goal for the next six months or so—this will help ease the transition into saving that much money quickly and make sure that it doesn’t feel like too big of a burden on your lifestyle.

It may seem like a lot at first, but if you’re serious about building up an emergency fund quickly then don’t be afraid to sacrifice a little now for the future!

Keep your emergency fund in a separate account

You may want to consider keeping your emergency fund in a separate account from your checking and savings accounts. That way, it’s more likely that you’ll leave it untouched for emergencies. You can name this account something like “Emergency Fund,” or use a nickname that makes sense for you (like “Rainy Day” or “Save Up”).

You should also try to keep your emergency fund safe and secure—that way, if something happens to your life or home, there will be money available when you need it most.

Don’t invest the money you save for emergencies

The main reason for building an emergency fund is to have cash on hand in case something comes up that requires immediate attention and a lot of money—like a car repair or medical bill.

If you invest this money, it won’t be accessible in an emergency, so you’ll need to liquidate your investment holdings at exactly the wrong time. For example, suppose your investments are in volatile markets (as they are now). In that case, selling them could mean taking losses or paying additional taxes due to capital gains if you’re not careful about when and how much of your portfolio is sold off.

Financial experts like SoFi often recommend, “Exactly how much you should save each month, however, will depend on your income, current living expenses and financial obligations, as well as your goals.”

Make frequent contributions to reach your goal faster

You can also make frequent contributions to reach your goal faster. If you start small and increase your monthly contributions as you get more comfortable, you will see results much sooner than you might think.

Unfortunately, not everyone has the financial means to save 10% of their income; if that’s the case for you, start with whatever amount of money is realistic for right now (e.g., 1% or 2% of your pay). Be sure to keep increasing it over time as well! It’s essential that saving becomes something woven into your everyday life.

As you can see, building an emergency fund is a great way to prepare for unexpected expenses. It’s also important to remember that the savings you build up with this strategy can be used for other things besides emergencies—like retirement or paying off debts. In order to build the most effective emergency fund possible, follow these tips: