Building an Emergency Fund: Preparing for the Unexpected

Adulting can be a wild ride, filled with the unexpected, and just when you think you’ve got it all figured out the “abrupt” can throw your life out of balance. A sudden expense can become the difference between being fine and struggling to get by. In this article, we’ll navigate the importance of an emergency fund and how to build one, especially for times of uncertainty. So, grab your umbrella because we’re about to prepare you for those rainy days!

So, what is an emergency fund?

An emergency fund is money intentionally set aside for financial emergencies such as losing your job, medical expenses, home repairs and any other situations we generally do not think will happen to us until it does happen. The point is it was not expected and usually a significant amount that if not prepared for could cause additional hardship. There are external sources like gofundme, a crowdfunding platform, or community resources that people can utilize in dire times; however, this is not always guaranteed.  

So, how do you build an emergency fund? Here are 5 steps to building an emergency fund

Step 1: Set a Clear Savings Goal for Your Emergency Fund

In the realm of financial preparedness, having a specific target is essential. Imagine your emergency fund as a safety net while you walk a financial tightrope. Start by calculating your monthly expenses, encompassing everything from essential needs to those quirky indulgences you can’t resist. Aim to save three to six months’ worth of expenses to shield yourself from life’s curveballs.

Example of potential monthly expenses

Then multiply by 3 or 6 (depending on how many months you want in reserves):

$3,325(3) = $9,975

$3,325(6) = $19,950

Emergency Fund Saving Target = at least $9,975 to $19,950

Step 2: Create a Budget that Empowers You, Not Restrains

Budgeting is one of the most fundamental tools that often gets a negative reputation, but when done right it gives you financial control. Have you ever got paid and wonder where the hell your money went? Think of budgeting as being in the know and having the power to dictate where your money goes. You are in control despite it feeling like your bills are the ones calling the shots. Take a closer look at your income and expenses, identifying areas where you can make cuts when necessary or opportunities to make more money. Utilizing apps like Mint by Intuit, PocketGuard, and/or YNAB can make the process less painful and more efficient. 

Step 3: Automate Savings and Let Technology Do the Work

What if I told you there’s a way to effortlessly save money? Automation helps you achieve your goal without having to actively do anything. You just have to set up the deductions either from your existing accounts or paycheck to an account dedicated to emergencies. With automation, you’ll bid farewell to the “Oops, I forgot to save this month” or “Oh, I do not feel like it” syndrome. By establishing and utilizing effective systems tailored to our needs, we can overcome the significant hurdle of self-sabotage and increase the likelihood of achieving our goals. It is time to implement auto-deductions and watch your funds steadily grow.

Step 4: Consistency and Patience: The Path to Financial Wellness

Plant a seed and watch it blossom into a mighty oak tree. Embrace the marathon of building sustainable habits to achieve financial wellness. Stay faithful to your budget, prioritize saving, and practice patience. Celebrate each milestone along the way to maintain motivation. Above all, resist the temptation to dip into your emergency fund unless absolutely necessary. It’s your safety net and not a piggy bank for impulsive splurges.

Congratulations! You have just learned how to build an emergency fund. By setting a clear savings goal, crafting an empowering budget, automating your savings, and embracing consistency and patience, you’ve constructed a financial safety net. Prepare for the storms of life and relish the peace of mind that comes from being financially prepared.