5 Ways To Build Your Emergency Fund

Be prepared with an emergency fund when the inevitable mishaps and unexpected expenses show up. How to build a financial safety net when tough times come by.

  • In this short 6 minutes read article, we shall answer:
  • What is an emergency fund?
  • How much you should save
  • How to build your emergency fund

Why do I need an emergency fund?

The inevitable always happens, life happens. Just things that come out of left field. Just stuff that will require a big chunk of money that was unforeseen.

The financial buffer an emergency fund provides can keep you afloat in a time of need without having to rely on credit cards or take out high-interest loans. 

How much should I save?

Calculate your monthly expenses and save three to six months of that amount. For example, if your monthly expenses are $4,000 then save at least $12,000 to cover three months of expenses. If you can save $24,000 to cover six months of living expenses, the better. Obviously, your amount depends on your financial circumstances but the more you can put away the better.

Where do I put my emergency fund?

A high yield saving account is one good option. Why? It earns some interest over time and access to your funds is quick and easy. Whenever an emergency happens, you need quick access to your funds without delays. The emergency savings should be preferably in a separate bank account than your main checking account. 

How do I build an emergency fund?

  1. Set a monthly savings goal. If you need $24,000 as your goal, determine how much you can afford to save weekly or monthly to reach your target. Have a monthly savings goal and stick to it. This will get you into the habit of saving regularly and will make the task less daunting. Even $10 every week will add up over time.
  2. Reduce discretionary spending. This is rather obvious but it is actually difficult for some people. For example, if you eat out twice a week, reduce that to once in two weeks. If you have lots of channels in your cable subscription that you actually never watch, get a less expensive service. Examine your spending habits and cut out the waste.
  3. Stop using credit cards that you pay interest on. Even before you start saving for your emergency fund, this should come first. Pay the highest interest rate card first and be debt-free then start building an emergency fund with lots of discipline and effort.
  4. Call your insurance provider and ask for an updated quote. You should shop around for insurance once a year. You never know when you’ll get a better offer on car insurance especially. Get multiple quotes online and compare prices on the same coverage.
  5. Save your tax refund. In fact, you can have your tax refund direct deposited to your savings account. For example, if you get a tax refund of $1,400, save it towards your emergency fund. If you repeat this for multiple years you will get to your goal sooner.

 

Speaking of tax savings

Almost everyone uses their car for some trips that may be tax-deductible. Especially if you are self-employed. A sales associate driving to meet clients, customers, work-related projects and so on. But how should you keep track of all the miles? Technology has a simple solution. Get a mileage logging accounts that keep track of all your miles in the background as you drive.

MileIQ is an app that lets you track every drive easily.

Your miles are automatically logged and recorded creating a complete record of all your tax-deductible and reimbursable mileage. Classification allows you to categorize which drives are business-related, and which are personal.

Create your free account today that allows you to track at least 40 drives a month for free here.

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