Building an emergency fund was identified as the number-one financial goal of millennial women and among millennial men’s top three goals.
Everyone who earns should have a contingency fund, lest something unfortunate or urgent happens. An emergency fund is a stash of money to cover the financial surprises life throws your way. These unexpected events can be stressful and costly. If you don’t already have one, now is to begin.
According to an analysis by money managers Fidelity Investments, news agency Reuters recently reported that building an emergency fund was identified as the number-one financial goal of millennial women. The emergency fund was also among the top three goals of millennial men.
Have you ever had an emergency fund but then realised the money you had saved was later utilised for purposes that would not constitute an emergency in the real meaning of the word? Did you feel the emergency fund is a buffer for your expenses?
Here is how to start saving up for the emergency fund:
Another account for your emergency fund
Creating another account for your contingency fund is the best way to avoid the temptation to spend it. When you have a separate emergency account, you will be less likely to drain out the money for routine or one-off expenses that would not be considered an emergency.
Have standing instructions to direct deposit a certain amount of money into your emergency account on payday. The actual amount depends on how much you can afford to save and increase it after a year. When you don’t see the cash in your usual account, you will be less likely to spend it on an impromptu vacation. Treat your emergency fund as a bill you must pay every month.
What is an Emergency?
Decide what you will consider an emergency. An unexpected health scare or home repair that cannot be put off can be a real emergency. Upgrading the audio speakers in your car or buying a new gaming console because someone else has it is not. Prioritise.
All Windfalls go into the Emergency Account.
Did you get a tax refund? Send it to your emergency account. Did you receive a Christmas bonus that you don’t need to use to celebrate the holiday? Again send it to the emergency account.
Did your favourite aunt send you a cheque for your birthday? Do the same. Using the money you did not anticipate receiving to fill your contingency account could be a great way to save.
Interest Income goes into the Emergency Fund.
Anytime you see interest income in your savings or checking accounts immediately transfer it to your emergency fund. Again what you dint anticipate earning should be used to pay for something you don’t expect. (Savings account interest is not exactly totally unanticipated, but most of us don’t make plans with it, so it should go into the emergency fund)
Replenish the Account
There is bound to be an emergency at some point. Once you spend your emergency fund or part of it, immediately replenish it. Don’t wait.