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How to Effectively Build an Emergency Fund.

2024, April 22nd

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SUMMARY / KEY TAKEAWAYS

  • Any financial expert will tell you that it’s a good idea to build an emergency fund.
  • But how do you actually go about it?
  • It can be something of a challenge for some people.

Any financial expert will tell you that it’s a good idea to build an emergency fund. But how do you actually go about it? It can be something of a challenge for some people. Buy from using the right type of bank account to even automating savings, here are some handy suggestions.

Assess How Much You Will Need.

Depending on whether you need an emergency fund for business or personal reasons, there will be an amount you need. To keep it simple, let’s talk about personal emergency funding. Experts such as Alex Kleyner recommend coming up with a specific number and maintaining it. For most of us, this is between $1,000 and $12,000. A personal emergency fund is really meant to cover something unforeseen, like a flooded home, or to cover outgoings after losing a job.

Consider the Type of Account.

There are some different types of bank accounts that work better for your goals. For example, an emergency fund is designed to be quickly accessible in the event you need it. Therefore, a savings account isn’t the best option. A basic account would be best. However, you will accrue the minimum interest on these types of accounts, so your money won’t work for you. If you don’t need cash instantly, an account that pays, such as an annual yield account, might work better.

Build an Emergency Fund with Goals.

Motivation can be a barrier when trying to save anything, never mind emergency money you may never use. Kind of like a game, you can set personal goals or KPIs for business for achieving what you will realistically need. Begin small, with $1,000, and reward yourself for getting there. Then aim to double your emergency fund savings within three months. Treat the family when you do. Keep up with a pattern of achieving milestones until you reach goals.

Automate Any Emergency Savings.

It is much easier to save money when you do it right away. It helps to make savings part of your outgoings so you don’t include them in your disposable cash. Of course, it can be hard for some people to put money away when they see it in the bank. Automation can help with this. You can use your banking app to automatically take your savings money from your primary income on a set date. This way, it will be placed into your emergency savings account like a standard bill.

Don’t Think About the Funding.

Out of sight, out of mind, as they say. It can be challenging at first, but putting the savings cash out of your head is a powerful way to save what you need for an emergency. Try not to think about the deduction as a part of your income but instead as a priority expense. Over time, it becomes a standard deduction to expect, and you won’t even think about it leaving your bank account. It is surprising how quickly the emergency fund builds as you gain peace of mind!

Summary.

Working out how much you need will help break down your goals when trying to build an emergency fund. You can stay motivated by setting milestones and rewarding yourself for reaching them. Before you know it, you won’t even think about the deduction from your pay.

Please cite as:
Ontology of Value (2024, April 22nd). How to Effectively Build an Emergency Fund. Retrieved from: https://ontologyofvalue.com/how-to-effectively-build-an-emergency-fund/

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