An emergency fund is an essential financial safety net that everyone should have. It will help you manage emergency expenses that could upend your budget and send you into a panic. If you don’t have one yet, you should start making one.
These are four tips that will help you along the way:
1. Don’t Touch It
Emergency funds are meant for unexpected, urgent expenses. So, if you’re dealing with an expense that isn’t urgent, don’t make a withdrawal from your emergency fund. You can take some time to save your money until you can afford the expense.
If you’re dealing with an expense that isn’t unexpected, like a routine trip to the car mechanic for maintenance, don’t make a withdrawal either. You should prepare your budget for this type of expense ahead of time.
Essentially, if you’re not dealing with an actual emergency, don’t make a withdrawal. It’s a bad habit that will diminish your safety net, giving you fewer funds to use when you really need them.
2. Refill It
If a real emergency crops up and you withdraw savings from your emergency fund, that’s great. Hopefully, it helped you handle the urgent problem and recover from the stress in a short amount of time.
After you’ve made that essential withdrawal, you should invest your efforts into filling the fund up all over again. You never know when an emergency will strike again. So, do your best to save and replenish your savings as quickly as you can manage. Otherwise, you won’t be able to depend on that safety net a second time.
What if you haven’t replenished the fund? If you haven’t replenished the fund and you get hit with another emergency expense, you might not have enough savings to deal with it. In that case, you could use a personal line of credit to handle the emergency in a short amount of time. If you have a personal line of credit, you could request a withdrawal within your available credit. If that request is approved, you could use the funds to cover the expense. Then, you would have to focus on a steady repayment plan.
3. Automate Contributions
Another emergency fund tip that you should follow is to automate your contributions. Log into your online banking and go into your checking account. Set up an automatic transfer between your checking account to the savings account where you store your emergency fund. Set the transfer so that it repeats every single month after you receive a paycheck.
If you find that you always forget to add some savings into your emergency fund, this is the perfect solution. Once you set up the automated transfers, you don’t have to remember the responsibility again. You’ll still manage to make your fund grow every single month.
4. Put It in the Right Account
One way that you can help your emergency fund grow is to put it in a high-yield savings account. A high-yield savings account will have a higher interest rate than a standard savings account. By moving your emergency fund into this type of account, your savings will accumulate interest over time. It will continue to grow, even when you don’t make a contribution.
These four tips will help you put together a strong emergency fund that you can rely on. Start following them now!
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