Building An Emergency Fund And Financial Safety Net For Your Family
By Carolyn Heidmann
Financial difficulties happen to everyone. They seem to be an unavoidable consequence of life. The monthly bills such as rent, car payments, and credit card payments can be planned for and managed; however, there are unforeseen emergencies, which may not fit within your monthly budget. These emergencies can come in many forms. Sometimes they come in the form of sudden medical expenses or household repairs. With a myriad of unexpected emergencies that are possible, it is important to build an emergency fund that you can turn to in order to cover these necessary expenses when they arise.
Many of us have enough difficulty managing our monthly expenses, so it might sound like wishful thinking to have an emergency fund available to us. However, it is important to realize that an emergency fund should be considered to be a necessity. The good news is that with meticulous planning and careful spending, it is possible for the average person to create a substantial emergency fund they could dip into when necessary.
The first step in creating an emergency fund is to decide upon a goal amount. This amount will vary by person. You should take into account your monthly income as well as your monthly expenses when deciding upon this amount. This process can be time consuming but the long-term benefits of having an emergency fund will outweigh the effort involved in this process.
Try to avoid an amount that is above your means. Keep in mind that the higher your goal amount is, the longer it will take you to achieve your goal. If it takes too long to build your emergency fund, you might discourage yourself from creating a fund at all. By contrast, you do not want to choose an amount that is too low. It should be enough to cover unintended property expenses such as a car or home repair. A nice round figure such as $2000 to $4000 should be sufficient for most of us.
Another step involved with planning for an emergency fund is setting a new monthly budget. In fact, many of us do not plan out our actual expenses ahead of time, which can lead to overspending. Planning a monthly budget can be advantageous in many ways. It can decrease stress, as you will know precisely how you want to divvy up your income amongst your bills. Also, efficient monthly budgeting can help you to plan out the best method to pay off your debts. As you gradually pay off certain debts, with discipline, you can increase the monthly deposits into your emergency fund using all or part of your additional funds.
Once you have established a budget, you can decide how much of your remaining income you want to devote to your emergency fund. Saving as little as fifty to one hundred dollars a month can be beneficial. The important thing is to decide upon an amount which you can regularly manage every month.
During the process of saving for your emergency fund, you will be tempted to spend this additional money. It is important to keep in mind that you do not have to devote all of your remaining income to the emergency fund. To keep yourself dedicated to this process, it might be helpful to approach the emergency fund as if it was another monthly bill. Treating it like an actual bill will help keep you focused on your goal. Try to create a due date that you can safely meet considering all of your other budgeting requirements.
With that in mind, it is vital to understand that there might be a month or two where you might miss your due date. Try not to be discouraged by minor setbacks. Instead, you might want to consider imposing penalties on yourself, if you do not make your emergency fund deposit on time. For instance, you might consider creating a flat-rate late payment fee of ten to twenty dollars.
When creating an emergency fund, it is important to make your money work for you. One of the more obvious ways to do this is to deposit your emergency funds into a savings account. Unlike a checking account, a savings account will accrue interest; thus, the financial institution will aid you in your goal by depositing a small amount of interest into your account every month.
Another consideration is to deposit your money into
a high-yield CD. Quite often, the interest accrued on a CD is financially more rewarding than it is with a simple savings account. However, this is only a financially sound option once you have accumulated $500 or more. These CDs are available in varying increments. Some end in a monthís time, others can span a year or longer; it is important to remember to roll this amount over after your CDís term has ended.
While the idea of saving for an emergency fund might sound promising, it may not be a viable option at this particular moment. If you are currently in need of financial assistance and you do not have the cushion of an emergency fund to cover these expenses, you might need to take a loan. Fast cash payday loans can be a reasonable option in this situation. A fast cash payday loan is a short-term loan that can help you avoid the fees associated with a bounced check or a late payment. Generally, this loan should be repaid when you receive your next paycheck. Fast cash payday loans are also referred to as: instant payday loans, no fax loans, faxless payday loans, cash advance loans, same day loans, check cash advance loans, and no teletrack loans.
It is important to try to restrict the use of instant payday loans to your immediate needs. It is financially irresponsible to rely on fast cash payday loans as a long-term solution to your monetary difficulties. If you come to consistently depend upon instant payday loans to manage your monthly expenses, you could potentially end up in a deeper financial quandary than you initially had been when you took your instant payday loan.
It is important to use fast cash payday loans only to help with your short-term monetary needs; afterwards, it advisable to begin balancing your monthly budget and saving for your emergency rainy-day fund. If you have a substantial emergency fund, you will not need an instant payday loan. Additionally, once you have attained the goal for your emergency fund, you can continue to treat your rainy-day account as one of your monthly bills, allowing you to save even more money. By the time you reach your goal amount, saving money every month will feel like a habitual trait. At that point, it would be advantageous for you to continue to use this responsible habit to create a retirement or college fund.