Emergency funds are cash reserves that help individuals meet unexpected expenses or financial emergencies. These may include personal care bills, automobile repairs and maintenance, job loss, etc. Since such situations may arise without warning, it is best to be prepared with funds to cover such immediate needs. It is possible to set up an emergency fund quickly with the help of strategies like reducing spending and looking for alternative sources of income.
1. Define a goal amount
A top tip to save for an emergency fund quickly is to set a clear and achievable target amount right in the beginning. Experts often suggest setting aside around three to six months’ worth of basic living expenses for the emergency fund. But, this may not work for everyone since emergency fund requirements may vary from person to person, depending on several factors. This is why it helps to start with a goal amount that seems attainable at first. For instance, one can save at least $2400 by the end of the year for the emergency fund. This means keeping aside $120 every month. Another factor to consider is the size of the amount one plans to keep in the emergency funds. For instance, if one has no dependents, low monthly expenses, and a stable income, three months’ worth of expenses is generally considered enough savings.
2. Choose the right account to save the emergency fund
A key step in creating an emergency fund is saving the amount in an account that provides easy access to cash while still allowing one to earn interest. For this, the savings must be kept in an account that allows one to access the funds at any time of the day and whenever there is an emergency. High-yield savings accounts are a good option in this regard because they allow one to earn competitive interest rates compared to a traditional savings account while still maintaining accessibility. Besides ensuring protection for one’s funds, these accounts do not involve any fees or minimum balance requirements.
3. Set automatic transfers
When thinking about how to build an emergency fund fast, consider setting up recurring automatic transfers right into the savings account. This can be done for each pay period, allowing the savings to grow over time. Alternatively, one can split one’s direct deposit, directing a percentage of every paycheck to the emergency fund. Using either method, one can consistently add to the emergency funds without using the money for any other expenses or requirements.
4. Reduce unnecessary expenses
A quick emergency fund savings plan involves finding various ways to lower expenses. This practical approach allows one to save some money for emergency funds. One can start by identifying areas to cut back on spending.
- Cancel unwanted subscriptions: Many people pay for several services through a recurring subscription model. But, if they no longer use these subscriptions or don’t find any value in them, there are hardly any benefits to keep paying for them. From various streaming services to app payments and unused gym memberships, there are several areas where one might be spending unnecessary money. Examine such subscriptions regularly and cancel services that are no longer required.
- Limit dining expenses: For those who dine out frequently, cutting back can easily help to save a substantial amount of money. Instead, one can opt to prepare one’s meals from home or purchase inexpensive foods or ingredients.
- Savings at grocery stores: Ensure one has a grocery list prepared before heading out to the store to avoid unnecessary impulse purchases. Along with this, use cashback or coupons to save on the total bill.
5. Increase income sources
One popular emergency fund strategy is adding more income streams. While it may seem challenging, diversifying one’s earnings can help boost savings quickly. If there is enough time in one’s schedule, using one’s skills to do some gig work or part-time work can help bring in more money in order to build emergency funds quickly.
6. Take advantage of windfalls
Sometimes, people incur unexpected financial gains through bonuses, tax returns, inheritance, or gifts. Instead of spending this extra money on non-essentials, they can leverage it to grow the emergency funds quickly and without tightening their budget. This strategy can be especially useful for those on a tight budget and are looking to save for emergencies.
7. Try saving challenges
Creating an emergency fund involves consistent effort. So, one can try a few saving challenges to save a steady amount of money over a certain period. Such challenges are not only fun but also offer a structured way to boost emergency savings over time. All one must do is follow certain guidelines, lower expenses, and consistently contribute to the emergency funds account. Some popular saving challenges include the no-spend challenge, 52-week saving challenge, envelope challenge, and roll the dice challenge. Besides encouraging disciplined savings, these challenges also make the process of building emergency funds engaging and rewarding.
It is also important to note that once one has reached the goal amount, one must stop adding to the emergency fund and redirect one’s savings to other important goals, such as retirement or investing in a home.
