Starting an emergency fund

Learn the reasons why an emergency fund is a necessity and some tips on how to get started in this video.
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It’s a good idea to have emergency funds in your family budgeting plan. The future is unpredictable and you could find yourself in the hospital for some reason, or you may be in an accident and total your car, or you could easily be laid off from your job. You should be prepared in case one of these emergencies occurs so that you can continue to pay your bills and buy food.

You should have somewhere around 3-6 months worth of normal expenses in your emergency funds. These monthly expenses should include your rent or home mortgage, any payments for home or life insurance, payments to the utility companies, credit card payments, loan payments, money for a phone or cable bill, plus the money you normally spend for food and other living expenses. You may have to pay the entire premium on your health insurance if you are out of work for a time, so add those on too.

It sometimes can take 6 months to find a new job if you lose your current one, and that is why experts suggest a 6-month emergency fund. Most people live paycheck to paycheck, and do not have much left over to start an emergency fund, but it’s never too late to start. Why not start today?

If you’re just starting an emergency fund, expect to start slowly. You will need to set up a budget and stick to it. It’s also a good idea to set up some goals as well. You might need to make some sacrifices such as premium channel packages on your smart TV and just stick with the free channels. If you go out to eat frequently or use delivery services, stop and make your own dinner instead, putting the money you would have spent on takeout into the emergency fund.

If you have a safe at home, you could store your emergency fund as cash, or if you have a checking account at your local bank, adding a savings account is usually a simple process that can be done over the phone. Banks are always happy to store your money for you. If you don’t like the bank you’re with, this is a good time to set up an account with someone else. Banks sometimes deplete funds through administrative fees if you don’t maintain a certain balance, so be sure to ask about that. Earmark a percentage or a set amount from your paycheck to go into your savings account. Some banks will set up an automatic monthly withdrawal from checking to savings so that you don’t even have to think about it, and the money will add up by itself over time. This is especially convenient if you are already on direct deposit with your employer or if that’s an option you can arrange.

Another way to increase your emergency fund is to save any extra money you might receive. Put it in your fund, whether at home or in the bank. Some ways to get extra money include working overtime or starting a side hustle, doing something you already know how to do. That could be as simple as posting on the grocery store bulletin board that you’re willing to do odd jobs on your days off. If you go to a restaurant twice a week, reduce your time out to only one night a week. Your emergency fund will grow faster than you expect it to once you get used to doing things differently and sticking to your budget.

Financial emergencies are not confined to sick time or job loss. Owning a home comes with some problems such as repairs of major appliances like the washing machine or dryer, or taking care of really big ticket items like a new roof. Homeowners or renters insurance won’t always cover your losses if something major goes wrong or if you suffer a burglary, but if you have an emergency fund, you’re self-insured. If you rent, you may have to pick up and move and you will have to have a security deposit and money to move. You may need to fix the transmission on your car or you may be in an accident and have to buy a new one. If you’ve embraced the mobile lifestyle and live out of a van or RV, you might need your whole fund just to recover from some unexpected disaster. The sooner you start setting aside some money for an emergency fund, the sooner you’ll have the peace of mind that you’re covered, because you never know when you might really need it.

This is not legal advice, so talk to a financial advisor if you need assistance in getting started. Hopefully you found this video informative and that I’ve convinced you of the necessity to start an emergency fund. Please click like on the video and subscribe to the channel. Thank you and see you next time!