Why It’s Essential You Create an Emergency Savings Fund
Are you prepared for a financial emergency? Read on to learn why you should start an emergency savings fund!
If you encountered a financial emergency tomorrow, would you have the funds to handle it?
Unfortunately, many of us don’t have enough cash-on-hand to cover a major unforeseen expense. In fact, according to CNBC News, only 39% of Americans would be able to cover a $1,000 setback using their own savings.
No one likes to consider the possibility of needing a pricey home repair, having a car wreck, or an unexpected medical emergency. But, these kinds of things are bound to occur to all of us at some point. And, if you don’t have the financial resources set aside to deal with life’s ugly surprises, it can make matters even worse.
Read on to find out why it’s essential to prepare for financial emergencies. And, learn how you can start a savings fund (even if you think you can’t)!
What Is An Emergency Savings Fund and Why Is It Necessary?
An emergency savings fund is simply money that you set aside to cover major, unexpected expenses.
The types of things that are covered by an emergency fund are usually non-negotiable expenses that must be paid immediately or at least in the immediate future. This is why it’s essential that everyone has savings designated to pay for life’s financial crises.
You might think that saving money seems impossible, depending on your personal financial situation. After all, 8 out of 10 Americans are living paycheck to paycheck. This means that 80% of wouldn’t be able to cover our daily living expenses for more than a few weeks if our regular source of income suddenly came to a halt. Not only that, but 75% of people claim that they are in debt and more than half never expect to become debt-free.
While there are ways other than a savings fund to pay for a financial emergency, many of the options that are available would send us further in debt, compounding the financial pressure that many of us already face.
Yes, You Can! How to Save Money Even If You Think It’s Impossible
It’s understandable why those who barely have enough cash to cover the cost of living think that saving money isn’t possible. But, for most of us, that’s simply not true.
No matter how much or how little income you receive, you can create a savings fund.
Here are some tips that can help anyone start saving money.
- Create a Budget
The first thing you need to do is to get a clear picture of how much money you spend each month, and where that money goes.
You should list all of your household utilities, the amount you pay for rent or mortgage, your monthly travel costs, grocery bill, and any other basic living expenses.
If it appears that you are over-spending in these areas, look at simple ways you can save on your current bills. This might include conserving electricity or shopping for items in bulk that you need each month but can purchase in bulk at reduced prices from an online retailer, perhaps.
- Review Your Spending Habits
Look over your bank statement and see how much you are spending each month on non-essentials (this includes such costs as eating out, weekend entertainment, frivolous or unnecessary purchases).
It may be immediately obvious where you could cut back on monthly spending when you review your past habits.
- Consider Less-Expensive Alternatives When Possible
Even if you don’t automatically notice areas where you can cut back, there’s a good chance you could be spending too much in less-obvious ways.
Consider the price you are paying for semi-essentials, such as your cable and internet package, cell phone plan, or car insurance each month. Is there one or more of these type of expenses where you might save some extra cash?
Maybe you can afford to reduce your current plan to one that doesn’t cost quite as much each month. If not, you might want to shop around for similar offers that would save you money.
Often, cable and internet providers, and cell phone companies will advertise incentives for customers that switch from their current plan.
You can also check for potential savings by going online and reviewing automobile insurance prices from multiple providers.
- Automatically Deduct Your Savings Each Month
Once you have calculated how much you can save by tweaking your budget, you will need to set up a savings account. Then, plan to have the amount you will be saving deducted and automatically deposited into your savings fund.
If you choose to automatically deduct savings, you won’t have to worry about setting additional money aside. Since it won’t be included in your checking account balance, you are also less likely to consider it as available to spend on other things.
How to Handle an Emergency Expense When You’re Not Prepared
If you are just starting a savings fund, it may take a while before you have enough to cover a financial emergency. If you happen to face a financial crisis before you’ve socked away enough savings, there are other options available.
For example, this article discusses personal loans that are available to help people who need immediate cash. Or, you might have a family or friend who would consider loaning you the funds you need.
These are good options when you have no other way to pay. But, just think how much more convenient it will be once you have stashed away a savings fund. And, you will have peace of mind knowing that you are prepared to pay for an unforeseen emergency should the need arise.
Want More Money-Saving Tips?
There are many other ways to save money each month that can help you add to your savings fund.
Remember, the more you save, the more secure you will feel about your ability to handle a financial emergency in a financially responsible way.
Once you get into the habit of saving, you might even start paying down debt or saving for a dream vacation.
Want more tips to help you achieve financial freedom?
Check out this post for money management tips so you can begin living a financially healthy life!