Life can bring all sorts of surprises! Unfortunately, we don’t know which surprises specifically will come our way, but what we do know is that many surprises have financial implications. Random events can happen; various appliances can break down, you can get sick or injured, and so much more. Building an emergency fund for the days that you dread can be a critical step to help prevent the stress and anxiety that can rush over you in these times of financial “surprise.” There are a few steps that are important to building an emergency fund as the money won’t appear randomly all at once. It must be planned and executed wisely. If done with the right steps in mind, an effective emergency fund can be put together and help solve your unexpected expenses quickly.

• Set several smaller goals, instead of one large goal

This can be difficult as you may just want to throw a larger number out because of your aspirations for a deep and comforting emergency fund. However, the larger the number is, the more difficult and challenging it is to get there. Starting with smaller numbers, or baby steps, can help achieve and maintain motivation as each goal is met. At the same time, it is still important to keep the whole picture in mind; therefore, you might lay out the “different levels” of the goal. You can even create a visual that can be colored in as you reach each mini goal if you find that helpful!

• Start with smaller contributions

Starting with smaller contributions will help lighten the stress as you begin to form the new habit of saving. Although the goal is very important, starting with big contributions may not be realistic. Finding one thing at a time to sacrifice could help the savings habit build as time goes by.

• Create a system that will work for you

Just because you add “Savings” to your written budget doesn’t mean you will automatically save. Create a system that will work for you. This system could include a written budget, direct deposits, depositing money on a weekly, biweekly, or monthly routine, etc.

• Save the “extra”

Saving the “extra” money that comes in can make a larger dent than you might think. These extras might include your tax refund, selling some of your unused possessions, or using money from a side job such as coaching, driving for Uber/Lyft, or delivering groceries. You might even be on the look out for loose change lost on the ground 😉.

• Automate your savings

“Automating your savings” can have several meanings. One could be that you complete paperwork to have your paycheck deposited into both your savings and your checking. Another option would be to set an automatic transfer from your checking to your savings on the dates that you get paid. By automating your savings, you do not have control or influence on the amount going into your fund, other than your original or edited changes. Some may even forget about the portion that gets taken out of the income!

• Don’t over save

As simple as it may seem, over saving can lead to lower cash flow than you should have. It is important to be saving for an emergency fund; however, it is also important to have finances on hand to cover any expenses that are in the present. For example, if you save too much, you might not have enough to pay for gasoline or groceries and as a result, you put those items on a credit card. If you do not plan to pay off the credit card each month, you will be charged interest. Allowing credit card interest to accrue while creating an emergency fund is counterintuitive. Once a goal is met, then try investing into an account that will be making money through interest.

If you would like help creating your emergency fund goal, set a free NEXUS Financial Coaching Meeting today! https://ronblueinstitute.com/schedule-an-appointment/

Reference

“Five Steps to Build an Emergency Fund.” Securian Financial, https://www.securian.com/insights-tools/articles/5-steps-to-building-an-emergency-fund.html

“An Essential Guide to Building an Emergency Fund.” Consumer Financial Protection Bureau, https://www.consumerfinance.gov/start-small-save-up/start-saving/an-essential-guide-to-building-an-emergency-fund/.