Emergency fund, as the name suggests, is money you set aside as resources for emergencies. When my younger brother had an accident back home in Africa, I was unprepared for his medical welfare because he had a brain injury.
However, I had an emergency fund, which I used to sort out his medicals. I have seen friends and acquaintances get confused and go deeper into debt because of a lack of emergency funds.
Financial emergency preparedness is part of your financial fitness. Anyone who has been through any financial emergency would understand its importance.
5 WAYS TO BUILD EMERGENCY FUNDS
- A journey of 1000 miles starts with one step:
Building emergency funds can be difficult for people with a poor money mindset, but it is possible. Analyse your outgoings from your bank statement and see where you can save small pennies. Suppose you have premium retail membership cards without shopping there often. Can you consider stopping it and start saving the money in your emergency account? Think of the expenses that go out you are not utilising. Put the pennies you are saving into your emergency fund account. It must be a bank account that you can access anywhere at any time.
- Go frugal to save sufficient emergency funds in a short time frame:
The excellent use of an emergency fund is for it to keep you above water when you are drowning. Your emergency fund must be sufficient to do that. To save more and save fast. It would be best if you went frugal to live below your total income to start saving fast and more. Examples; 1. You can switch to reusable kitchen towels instead of disposable hand towels that between £2 to £5. 2. If you buy lunch at work, you might consider making lunch at home and taking it to work if convenient. The goal is to save more as fast as possible.
- You must know your money and financial capacity before starting to develop an emergency fund:
Many live above their means because credit facilities allow them to have what they cannot afford. At this point, every adult needs to face challenging tasks of what needs to be a priority or not. Food, Electric & Gas bills, Transportation to work and Rentals are costly, and salaries have not been able to match the cost of living. Is it okay to buy a car with a high financing budget or buy an annual train ticket to save over 15% of the total cost? Secondly, is it okay to upgrade to a new phone that costs £70 for 24 months (which becomes £1680.00 for a phone) or pay off the rent arrears you owe? If you don’t have emergency funds, you have to set your priorities right to be able to save and build it up.
- Stop all the charges from debts by clearing them:
It is always good to speak to the companies you owe and ask for a repayment plan. Once you got all that sorted. You will save enough from interest charges and keep it in your emergency fund account. Emergency funds are part of your financial fitness, so you will stay on finance treadmill exercise until you build your emergency funds. Living hands to mouth and for bill payments will never allow you to become financially independent. You must stop unnecessary money leaks and save them in your emergency funds account.
- Your salary is a tool you need to survive with and build more income plugs:
When you understand that you are only living to fix your car finance, phones and entertainment gadgets bills, you will understand the need to buy what you need and not what you want at the beginning of your financial fitness journey. Make a budget for what you need and stick to it; every penny or cent you receive as a salary must have a name. I know many people that work so hard but live hands to mouth, and this should never be so. Get your debts and emergency funds fixed, and you can save and invest without panic attacks and anxiety.
I hope this helped
I can answer questions related to personal finance in the comment box. Feel free to ask your questions.
