Four ways to build an emergency savings fund

Am I really saving enough for retirement? (F)Having an emergency savings fund is essential. Not only is it a good idea to have some money to fall back on, but it is necessary. At some point in everyone’s lives, there is a bit of financial struggle. Learning betterment investing can help save you a lot of stress and keep you from facing financial hardship.

Before you can build an emergency fund, you’ll need to decide what to include into your emergency fund. Do you just have a rent or mortgage payment? Or do you have a car payment in addition to rent or mortgage? You might also want to consider other factors about what you consider as an emergency. Many people choose to include basic items such as food, utilities, and day-to-day expenses in their emergency savings funds.

Once you’ve considered what to include into your emergency fund, you might want to take it a step further. If you’ve decided to make your emergency fund the same amount as a typical month worth of your regular bills, which are say £3,000, do you want your emergency fund to be just big enough to get you buy for one month? Or do you want it to get you by for several months?

Typically, you won’t touch your emergency fund until something happens, such as a unexpected car repair that may cost a lot, or something major happening to their car or home that they weren’t expecting. But for the most part, emergency funds are left untouched until you lose your job. It may take a few months to find employment, and even then, your first check might not come for two or three weeks.

Smart Investments

Learn how to invest your money in the right places. How much you want to make depends on you. You may opt to invest in low-risk stocks and investments, but the return on your investment will be much smaller than a high-risk investment. On the flip side, you can invest your money into high-risk investments to make even more money. The danger is that you could lose your money, but if you strategize, your payout can be very high and you might even double or triple your money.

Cut Expenses

You might think packing your lunch is a hassle but you would be amazed at how much you can actually save by packing last night’s leftovers. Even if you eat out with offers and get a main course, fries and a drink, that’s still around £5. That’s almost £25/week, or £100 per month, on average. Over the course of the year, that’s a rent or mortgage payment. You can also cut corners by spending less on clothes, shoes and entertainment.

Change Your Habits

Reward yourself by changing bad habits. If you like to splurge on coffees or video games, each time you tell yourself, “No,” put that money into a savings jar. You can do this for anything, i.e. eating out, swearing, buying new clothes, going out, and much more. At the end of the month, put the money from the savings jar into your bank account. You’ll be surprised by how much you actually splurge when you don’t need to and it will help build your emergency fund.

Bill Yourself

You have to pay those pesky utilities and either a car payment, rent, or mortgage, but who pays you? Pay yourself every month and put that check into your emergency fund or into your savings account (if your emergency fund is already built up). Doing this does a couple of things. First, it gives you self-satisfaction that you paid yourself. Who else just sends you money? The other thing it does is allows you to see your emergency fund grow at a rapid rate. Growing your emergency fund at a rapid rate creates a sense of satisfaction and self-control; it’s rewarding. The biggest reward of all is when it’s as big as you’d like, and then you can start investing into a savings account for other things such as a down payment, a new car, a vacation, or whatever else you’d like to treat yourself to. After all, if you’ve saved enough for both the emergency fund and the bigger payoff, you deserve it!

Kevin FaberAbout the Author:

Kevin Faber has been in the commercial finance and banking industry for most of his professional life. He graduated at UC Davis with a B.A. in Business/Managerial Economics.

His experience in credit analysis, finance, and management led him to be the founder of Silver Summit Capital. He enjoys working in the financing industry and building connections with industry leaders.

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1 Response
  1. Jessica

    To set a goal, first figure out where your money is going. Use personal finance app such as Geltbox to track your spending. At the end of the month, look for where you can trim, and then set a goal that makes you stretch a little but doesn’t leave you subsisting on Ramen noodles.