How to build emergency fund

Building and maintaining an emergency fund of cash is tough. Unexpected expenses keep popping up be it your car, health, home, or kids. It seems like there’s always something draining your money. That’s why creating and keeping an emergency fund is so important. Once you establish a starter fund of say, $1,000, when the unexpected happens—and it will—at least you’ll be prepared. And no matter what calamity befalls you, it won’t be able to play fast and loose with either your peace of mind or your lifestyle. With an emergency fund in place, you can continue to do the things you enjoy like eating out or getting a manicure without guilt or worry.

Build an Emergency Fund by Paying Yourself First

When trying to save, one of the most common mistakes people make is to pay all their bills and then see what’s left to put towards savings. While the bills need to be paid, this attitude will get you nowhere except further behind the eight-ball. The first bill you pay should be to your emergency fund, say 10% of your entire paycheck right off the top. Then, with what’s left, pay your bills. If you find you can’t meet your obligations without that 10%, then you need to change your lifestyle or your budget to establish an emergency fund. Perhaps you have to cut back to eating out only once a week or maybe riding the bus to work.

The other problem with trying to save money after all the bills have been paid is that people tend to think that what’s left is not worth saving. Nothing could be further from the truth. Every little bit helps when it comes to building an emergency fund. If you can’t seem to put away 10% of every paycheck, shoot for $90 a month. In one year’s time, you’ll have over $1,000 stashed away.

Account for Every Dollar

Use the principle of a zero-based budget and stick to it. This means writing down every bit of income you receive in a month as well as listing every single expense. When you’re done, you should have no money left over. If you do, then you should opt for a larger contribution to your fund. If you spend more than you earn, then you need to reign in your spending. And while that last item is easier said than done, there is usually room in every budget for some belt-tightening. Can you save on groceries by shopping at a warehouse store? Can you dial down your cable and cell phone services?

Important Note: When you create a budget, don’t forget to include things like new clothes, haircuts, dinner out, and movies, etc. You still need these things within reason. If you include these items in your budget, you’ll ensure you’re still able to enjoy them should an unexpected expense pop up.

Think Different About Money

To become less of a spender and more of a saver, you have to change more than the way you behave with money. You have to change the way you see it. People who save value the feeling of security they get knowing they’ve got a nest egg to fall back on should they need it. People who don’t save, tend to spend right up to their last penny and have nothing to fall back on should an emergency happen.

What to do Before You Build Your Fund

Accumulating money for your emergency fund won’t happen overnight. It takes time and commitment. But what do you do if an unexpected expense pops up before your fund is fully place? These days, there are several options for getting cash other than from a bank. One method is a payday loan. These loans are based on the amount of your salary and their repayment schedule is based on your next pay day. The downside of payday loans happen when you can’t repay the loan in full on your next pay day. The only alternative is to pay a hefty interest fee and roll over the loan to your next pay day. Keep in mind that the average payday loan is rolled over 10 times before it’s repaid. That means you’ll be paying a lot of interest.

Another alternative way to get cash is a signature loan. Signature loans are short-term, unsecured loans. They’re available at local lending stores and from Internet lenders. You will need a steady income and an active checking account. One of the best things about signature loans is that most lenders give you 6–12 months to repay the loan. What’s more, since there’s no FICO credit check even someone with poor or no credit can qualify.

Having an emergency fund in place is preferable to paying high interest rates elsewhere. Establishing an emergency fund comes down to deciding that having money in the bank is more important to you than impulse purchases. When you reach that conclusion, follow the steps above. They’ll make saving and building an emergency fund easier than you think.

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