How to Build an Emergency Savings ?
It is that part of finances, that many of us don’t give quite enough importance to. Emergency savings is a requirement, and not a luxury financial decision. We need to drill this fact into our heads!
Pay attention America.
The debt situation in our country is not good at all. Nearly every single consumer has some sort of debt in their financial portfolio. Some have credit cards, some have both credit cards and payday loans, some have unaffordable mortgage payments, and the situation only elongates, as you do case studies of individual consumers.
And, believe it or not, most of the debt problems have started out for the consumers due to the lack of their personal emergency savings fund.
A critical example will be, assuming someone has a life threatning accident.
And, due to the absence of a proper fund, that person lands into mountainous medical debt. Now, if this person makes the payments with credit cards, then heavy interest rates will follow up accordingly.
See, it’s just that easy to fall into debts, if you don’t have adequate funds to compensate for heavy unplanned expenses. And, to touch the final tone, insurance might not always be a good source of fund, to rely on.
Hence, you build your fund, DIY! Plain and simple! No third party involved, and total freedom.
Divide your income into percentages, and make up a budget:
The best way to build an extensive savings portfolio, is to percentage out your income, and break it down into multiple segments.
One part will be your normal monthly savings vault. Another could be your monthly utility bills cost, and one for monthly transportation cost, another for debt payments, and you go on like this by dividing your income into all major category of expenses you have for a month.
And, while doing it, you just have to create another section, apart from all the savings you do, and name it ‘Emergency Fund’. This is a completely separate entity, and is not to be mixed up with your other savings and investment vehicles.
Also, you will be only breaking into this ‘emergency savings’ fund, only when you are messed up due to unexpected or unplanned expenses.
This percentage system that we are talking of, can be defined as the percentage budget. Each percentages define different expense categories, as discussed already.
And, believe it or not, I can rightfully end this post out here, as if you follow the percentage budget consistently, then within a few years’ time, you will be having significant amount sitting in the emergency savings account.
But, more is always better. Having only one savings amount designated as emergency fund might well not be enough, given the modern times of rising inflation.
Take help of insurance policies as a secondary emergency funding source:
Mostly, all unplanned expenses are made up of medical expenses, accidents, catastrophic events, and other unloved reasons.
And, thank god, that we have insurance to cover up for us, when we need financial help so much.
But as I have already said at the beginning, that insurance is something you should deem as secondary in comparison to your own personal emergency fund, I will stick to this point, for sure.
God helps those who help themselves. It is that age old truth. So, guessing that you are taking all the pain it requires to build an emergency fund, you should now focus on some top-notch insurance policies, to secure your finances even more.
One life insurance, one health/medical insurance, one home insurance (a minimal one), and one auto insurance policy, are a must. If you don’t have your own private vehicle or your own outright residence, then you can skip the insurance for these two.
But, life insurance and medical insurance really matter a lot, and are a must for everyone, until and unless, someone has enough net worth to cover any emergency expense.
Having stated that, you can be well assured, that a separate emergency savings, with a nice support of insurance policies, is the best combination you can go for, so as to gain financial stability.
Try not to have any debts in your life:
I am interested in highlighting this point, because financial independence comes a lot nearer, when you don’t have debts.
By debts, I obviously mean those bad money snatching consumer debts. Those that carry high interest rates, with barely any asset value or moral investment factor attached. Examples are credit cards, payday loans, personal loans, and anything of that sort.
Mortgages, or profitable car loans, or other collateral oriented debts, are usually on the brighter side.
And, if you are having too much of these high interest unsecured debts, then you should find a nice process that consolidates your multiple bills, that you are probably dealing with each month.
A single bill is really neat and effective, when you are following the percentage budget to build your emergency savings. You can easily keep only one section from your income, dedicated toward the consolidated payment for all your debts.
Not to overlook, Habits define everything:
You might be all set in bringing some huge changes to your finances by working out an emergency fund, but what about the habits?
Are you working to mould some financial habits of yours as well?
If not, then you might not be successful in accomplishing your emergency funds goal. You need to understand that the less you spend, the more you can save.
Therefore you have to pay attention to the low profile spending model, that I am about to present you.
Mark these bullet points and work them out for real:
Go for a credit card freeze, till you have cleared all your credit card debt, and till you have done adequate savings.
Emergency savings will always be the first priority to fulfil, after you have taken care of your normal monthly savings. So, make sure, that even if in a month you have more expenses to deal with, you are at least stacking in a set amount of money to your normal savings! Then if possible you can lean toward emergency savings. But, satisfying one savings account is the minimum requirement, no matter what is your expense figure.
Try not to break into your emergency savings, till you have reached at least a minimum of $2000 in it! Just because you have a fat amount waiting to be exhausted, doesn’t mean you should splurge with its help. That’s exclusively for emergency!
It is a very critical situation, as 62% Americans don’t have a $1000 emergency savings! Bet, you seriously don’t want to be a part of that population.
Expand your net worth, concentrate on a potent savings portfolio, and smile always! Cheers!
Thanks & Regards, Andy Masaki
Blog : www.PennyLessDad.com
