Good financial management requires pre-planning and handling money in a responsible manner. Creating an emergency fund is a part of an intelligent financial plan. Life has a way of throwing curves, and the more you’re to weather the storm, the further you are along the financial spectrum.
Saving is never “not an option.” Regardless of how much you earn, you can put aside something each pay period. Set a budget and live within your means. Focus on regulating the parts of your budget that fluctuate. Of course, this leaves out mortgage, car payments, and insurance. Food, clothing, and entertainment can be tweaked until you are comfortable with the plan.
It is actually better for monies allocated for emergencies to be automatically deducted. Once you become accustomed to not having it, it is easier to live within the budget you create. Track your expenses and cut back wherever you can. When you spend less than you earn each month, you are on target for a proper financial mindset. This does not mean that you have to live miserly. Simple things like savvy shopping, splurging less, and finding ways to add to your income help overcome the feeling that you are sacrificing a lifestyle to which you aspire.
Using alternative methods can work if used responsibly. An advance on your paycheck or a credit card may be a plausible temporary fix. Both should be short-term solutions. In times when you need a check advance online or credit for a big purchase, take the time to plot out the repayment schedule to ensure there won’t be any problems down the road.
Having funds on hand for unexpected occurrences is one way to help keep stress under control. Financial experts suggest having three or more months of expenses, but that may not be possible. Putting money away consistently, and leaving it alone, will grow your savings. Vow to yourself to use it only for emergencies. A vacation or a new outfit is not an emergency.
Try not to use a credit card unless you can pay the balance in full when the statement arrives. If you must use it in an emergency, pay the balance in as few installments as possible. Try not to use the card again until you have paid the balance.
Thinking ahead, and not just living for the moment, requires maturity and a sense of responsibility. Job loss is at the top of the list of unexpected occurrences. Health expenses, home or car repairs, and funeral expenses are other common reasons for needing funds unexpectedly.
Consider putting any unexpected money, such as a tax refund or a raise, into your emergency savings fund. Continue to live on the amount to which you are accustomed. Stash your funds in an account that is separate from your primary account.
Make retirement savings your primary goal. Try to pay off consumer debt next because it does not add any value to your financial portfolio, then start saving for emergencies. Any other goals, such as your child’s education, should be last on the list. If you can pay off debt and save for emergencies, it will be easier to save for other purposes.
Everyone needs emergency funds to tide them over the rough spots. Your financial toolkit is not complete if it is missing. Always be alert to alternatives that will help you reduce your expenses. Be aware of obvious wastes. Look especially at expenses that you pay automatically. Often, we continue to pay for things like subscriptions, warranties, or insurances long after we no longer have them or need them.