Building an emergency fund on any budget
Building an emergency fund may feel overwhelming at first, but it becomes much more manageable when you break it into simple steps.
Setting your emergency fund goal
The first step in building your fund is determining how much you need. First create a list of your essential monthly expenses like rent or mortgage payments, utilities, groceries and household supplies, insurance premiums, debt payments, and transportation. With the total of those expenses, multiply that number by the number of months you want to cover. A great starting point is three months. However, six months is ideal for those variable incomes.
Prioritizing Emergency Savings in Your Budget
While reviewing your income and expenses, identify how much you can set aside each month without sacrificing essentials . Once you have that baseline, using a budgeting framework helps allocating your income feel a little less overwhelming.
A popular framework method is the 50/30/20 rule. Designate 50% of your monthly income to your needs, 30% to your wants, and 20% to your savings and debt repayments.
Keep in mind that when it comes to building your emergency fund, it doesn’t have to be an all or nothing scenario. Even $10 or $25 per week is a great start. The goal is to build the habit and keep it consistent.
Find Hidden Savings
For a few weeks, keep track of your spending. Look for small, recurring expenses that can be reduced or eliminated. With these ‘money leaks’ identified, redirect those savings into your emergency fund.
Automate your Savings
Just like you automate your bills, try automating your monthly emergency savings. Set up automatic transfers from your checking to your savings account. Automating this step helps you stay consistent, removes the temptation to skip a month, and makes your emergency fund grow quietly in the background.
Consider a High-Yield Money Market Account
Store your emergency fund in a High Yield Money market Account where it can earn interest but remain accessible when needed. It’s a simple way to make your emergency fund work a little harder for you without adding any extra steps.
The material provided on this page is for informational use only and is not intended for financial, tax or investment advice. VisionBank and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.
