Emergency Fund - Easy Ways to Start Saving for Emergencies

Life is filled with unexpected things. It is not sure that our life will always be as comfortable as we are living now. At any point of time we might face unplanned challenges, financial hardships or other tough situations. Being financially unprepared in these times can lead us into debt trap, a stressful life and more difficulties. To make sure we have the financial support we need during hard times, it’s important to understand the value of an emergency fund and start setting aside some money as a financial safety fund. 

In this blog we will discuss everything about emergency fund and ways to build our emergency fund so that we should now striggule much on our hard times

What is emergency fund ?

An emergency fund is a fund that is reserved to cover our unexpected expenses during hard times like medical bills and job loss. It is a fund that helps balance our lives during unexpected challenges. Emergency funds can be very important for preventing us from falling into a debt trap and they also help us maintain our normal lives after an unexpected event.

This fund prevents us from debt and from having to work extra hours to pay it off. Everyone is recommended to keep saving for unexpected times.

Why is an Emergency Fund Important ?

Preventing debt : 

One of the biggest advantages of having an emergency fund is that it helps us to avoid high-interest loans and credit card debt. When unexpected expenses arise like medical bills , education bills. We may be forced by a situation to use our credit cards or take out loans to pay our bills which can lead to high debt  with high interest rates in a short period of time.

Financial Stability During No Job :

Emergency fund also provides us support when we lose or want to switch our job for any reason. Losing a job can be one of the worst times for us. Job can help us to live a better life by covering all the basic expenses such as rent, utilities, groceries etc. This stability not only helps to manage your day-to-day life but also gives you the freedom to take your time finding a job that we like .

Mental Peace:

During unexpected situations our mental peace is itself distracted and  financial crises can add more stress to our mental health. Knowing that we can cover all the expenses in our unexpected situation can give us some level of mental peace and also helps to feel more secure. Mental stress during hard times can last for a long period of time because it can lead us to work more hours than usual to pay our loan , interest and cover expenses.

Steps to Build Your Emergency Fund 

Monthly Saving Goal:

This is the first step for building our emergency fund. We should calculate our total expenses for the month and set a goal for our Emergency fund. After we  understand our Expenses we should plan our monthly savings amount from our Income. During this time we can also lower our daily expenses. If we reduce our daily expenses while building our emergency fund, we can reach our savings goal faster.

Separate Account:

To make sure our emergency fund is safe we can create different accounts to save our emergency fund. If possible we should choose such an account where we cannot withdraw the amount till some period of time. It's better to avoid making this account accessible on our phone or any other portable devices.

Automate Savings: 

Automatic saving can be the best way for building any kind of fund because It ensure consistent contribution to our emergency fund by automatic saving. If possible it is recommended to set up automatic transfers from our checking account to our emergency fund account every month. With Automatic saving we should not remember our saving goal every month. We can also automate our emergency fund account to withdraw interest from our fixed deposit at regular intervals. With this technique we can maintain normal savings in the fixed deposit account while increasing our emergency fund.

Reduce Non-Essential Expenses:

Finding extra money for your emergency fund can also come from cutting back on non-essential expenses. We should review our entire expenses , Income and cut off unwanted subscriptions , stop buying unwanted things , stop going out for dinner by cooking at home and buying less new clothes by using clothes that we already have. Even if we start saving a small amount, it can be really helpful during our hard times.

When to Use Your Emergency Fund

True Emergencies:

Emergency funds are for those times when we need immediate financial support and when we need a high amount to prevent losses from unexpected situations. Some examples of emergency situations are : Accident ,  Surgery , disease treatment , Education fees , uncertainty in family life etc.

What Not to Use It For:

It is very important to identify the right situations to use your emergency fund. Many people end up using their emergency fund for the wrong things. You should never tap into your emergency fund unless you are facing truly tough times. For example, wanting a new phone or going on vacation is not a true emergency. By saving your emergency fund for these important situations, you can be better prepared for life's surprises without getting into debt.

How to Refill Your Emergency Fund

Refilling After Use:

If we ever need to use your emergency fund you should always consider refilling our emergency fund account as soon as possible. We should always make sure our target amount is on our emergency fund. When our emergency fund gets low we will enter a risk zone which can be a tough situation again without any money saved for emergencies. We should start by saving a specific amount each month until you reach your original goal.

Setting New Goals:

Once we build our emergency fund we should have a further target to build more emergency funds or increase the target amount for the emergency fund. The more emergency funds we have the more stronger and secure we get. If our emergency fund gets high we can also split it for further investment and emergency fund. If we are not used till your retirement you can also split it as retirement fund and emergency fund. 

As we discussed in this blog, we can plan our emergency fund based on our income sources and expenses to move forward in life. With some emergency fund building strategies, we can experience a more secure life with less risk which can be really helpful during our unexpected situation and for the long term.