Life is unpredictable. No matter how carefully you plan for things like bills, maintenance, and other common expenses, there’s always a chance something could come along and throw you entirely off track. That’s why countless financial experts recommend people should always create an emergency fund before they start putting cash towards long-term goals. An emergency fund is essentially the buffer of cash you leave yourself at all times to make sure you can deal with unplanned expenses. If your boiler breaks or your car stops working as it should you’ll be able to use this money without having to take out loans, or tap into other financial resources you might have. So, where do you get started?
You’re going to struggle to build an effective emergency fund if all of your spare money is going towards interest rates and fees. With this in mind, it’s worth taking a look at your current debt-based expenses, and seeing where you can cut down some costs. While you might not be able to pay off all your loans at once, you can potentially reduce how much they’re going to cost you, by refinancing. Refinancing your student loan debt into a new loan is a great way to reduce monthly expenses, without changing your lifestyle at all. Once you’re done refinancing and organizing your debts, add the amount you need to pay each month to different providers to your list of outgoing expenses.
Next, it’s time to follow very helpful personal finance advice and set a goal for your emergency fund. There’s no one-size-fits-all strategy here. Most financial experts suggest you should have at least three months of your income available to access at all times. This ensures you should be able to handle most common expenses and emergencies. Plus, you’ll be able to survive if you suddenly find yourself without a job. However, it’s up to you to determine how much you’re going to feel comfortable with.
Balance your desire for a strong safety net with a good understanding of what you can reasonably afford to save each month. You can determine how much you’re likely to have left over after bills and other expenses by working out your budget. While you’re budgeting, make sure you keep an eye out for any costs you might be able to reduce so you can dedicate more funds to your savings. If you’re overspending on subscriptions to services you don’t use, now could be the time to cancel.
Finally, open a separate savings account for your emergency funds, and create a standing order to move the amount of cash you want to save each month into this location whenever you get your wages. This will prevent you from accidentally spending more than you’d like, and should ensure you can start building your safety net quickly. Having a separate account should ensure you won’t be tempted to dip into your money for non-emergencies. You could also use this account as a place to store extra cash you come across during your life, as a result of selling old items you no longer need, or getting bonuses at work.