If there is one rule that bears repeating when it comes to financial stability, it’s having an emergency savings fund.
While it’s nice to think that our financial situation could never change or worsen, the simple fact is that job loss or changes in living situations can quickly turn our financial positions on their heads.
The accepted rule is that you should have the equivalent of 3 to 6 months of salary stashed away for unexpected costs or catastrophic changes in living. While this model sounds ideal, we also understand that building that emergency fund can seem downright impossible to many people. With the current poverty rate in the United States around 14% and over 50% of the population considered middle-class, it’s no surprise that many people see the steps to building an emergency fund as out of their reach.
If you are one of those people who are without an emergency fund but are keen to build one, you’ll have to keep in mind a few important steps to succeed:
Keep your emergency fund separate from your savings
Don’t lump all your savings into one pot together. If you have savings, retirement savings, or funds you are putting aside for a specific purpose, they should all be kept in different accounts. This is to differentiate your emergency fund as a pot you only dip into when you are in dire need.
Some people consider their RRSP or retirement savings plan as emergency cash, but this money shouldn’t be confused for emergency funds. Using your retirement savings early can negatively impact meeting long-term financial goals.
Contribute regularly but be willing to change
It would help if you were regularly contributing to your emergency fund, building it steadily into a cushion that will be able to support you and any dependents for a set amount of time in case the worst happens.
Consider setting up automatic deposits from your accounts when your paycheck arrives so that you don’t have to “see” the money leaving your account. Even small contributions of $15 or $30 are better than nothing.
That being said, be willing to change your contributions based on your cash flow. If the amount of free cash you have increased, contribute more. If it decreases, go less.
Consider your options if an emergency happens without a fund
Emergencies don’t wait until you’re ready for them. That’s why we call them emergencies. While you’re building your fund, be sure to understand other avenues available to you if you require cash when you don’t have the liquid assets to spare.
Loans can work as a stop-gap in these situations, including emergency loans such as those offered by Northcash online loans. Keep in mind, these loans have extremely high-interest rates and should only be used as an interim solution. You’ll want to be able to pay them back quite quickly to make sure interest doesn’t accrue.
Apart from emergency loans, you could look to borrow money from friends or family, with the understanding that you must pay them back, in full, before they ask for the money back. Otherwise, it could create bad blood.
Author Bio: Jennifer Harris is a financial writer from Michigan, Illinois. She started her career as a bank teller while pursuing freelance writing on the side. When friends started reaching out to her looking for ways to stabilize their finances, Jennifer saw the opportunity to combine her passion for finances and writing by creating easy to follow articles on how to manage your money and life better!