How to Build an Emergency Fund

By | August 17, 2020

In this time of  pandemic, most people realized that having an emergency fund is one important aspect of having a healthy financial status.

Some are thinking of having one but don’t know where to start. It is not as hard as it seems but first..

saving, piggy bank, emergency fund

What is an Emergency Fund?

From the word itself emergency, it is unforeseen events or circumstances that need immediate action.

Emergency fund is an amount of money that you have that can be used for those situations that possess an immediate risk on your daily living.

Like losing a job, a sudden need for repair of your car an accident or for a hospital bill.

It is recommended that you have an emergency fund equivalent to three to six months of your household expenses. 

How To Start?

First, you have to know how much you spend each month. Monthly expenses multiply it by three for your initial target of the emergency fund.

Now that you have the amount needed, make a target date when you want to accomplish your goals. Put together a plan and execute it.

You can also list down your monthly expenses and categorize it based on your needs and wants.

By this way, you can save from those expenses that need to be limited or to be removed from your list.

It may be an expense from dining out, travel or vacation, gym membership, or your favorite breakfast every morning on a high end coffee shop. 

I don’t mean that you will deprive yourself but if you want to treat yourself, you can also allot a budget for it aside from your savings BUT your emergency fund must be your priority.

Resist the urge to spend any extra money like an increase on your salary or a tax refund or additional income you earned from your sideline.

You  should put it automatically in your savings as an addition to your emergency fund. 

Make It as a Habit

Saving for your emergency fund should be a habit. Treat it as a monthly recurring bill that you need to allot for payment.

You can also set a regular funding for this through your bank account so every month it will be automatically deducted to your account.

You can invest your savings in a high interest, low risk, easy access investment.

Like a mutual fund so your money can earn a bit while it grows.

When saving for your fund, you should know the draw line between emergency and everything else.

When your fund grows, do not be tempted to use it for non emergency purchase. Saying that you will return it afterwards.

As much as possible keep it in a savings account or investment aside from your payroll account so you wouldn’t be urged to use it. 

Building an emergency fund is not overnight. It’s not too late to start now.

You just need to have self discipline, some sacrifices and have focus on your goals on having financial freedom.

Believe me it is all worth it!

Happy savings!!!

4 thoughts on “How to Build an Emergency Fund

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