Time to cut up the credit cards and get serious about achieving your own financial freedom. The next step after maintaining a home of your own and being able to meet all of your expenses is saving for an emergency fund.
Why save up?
You may feel that you have your budget under control now, but the simplest incidences can make for financial disaster. Your car may break down, or you may experience a serious injury that keeps you away from work. No matter what happens, you can make sure you’re prepared if you save enough money for a six-month emergency fund. Here’s how to make it happen.
Calculate how much money you will need to save. Most of the financial experts say that you will need to save at least six months’ worth of your budget to be financially secure. This means that you will be able to meet all of your financial obligations, such as your rent, food, transportation, and bills, if you were to lose your job or encounter a costly home or car repair, for example. Don’t include extras such as entertainment expenses in your budget; you can pare those down as needed if you ever find yourself using your emergency fund.
Be realistic. Not everyone will be able to save up by putting away large amounts of cash each month. In fact, not many people can do that. It doesn’t matter if you’re only putting $20 or $30 away into your emergency savings at the end of the month. What matters is that you do it consistently.
Remove obstacles. If you know that it will be difficult for you to save that much each month, eliminate the likelihood that you’ll skip out on your savings by setting up an automatic bank transfer. You can specify how much you want deposited into your savings account, at what time of the month the transaction should happen, and from which account you want to take the funds.
Pocket the money you save on necessities. Financial vigilance is key when you’re working towards a savings goal. That means that you should always shop around for the best deals on necessities, and then put the money that you save toward your emergency funds instead of spending it on other purchases.
Make it more difficult to splurge. This may mean leaving home each day with only a pre-packed lunch and the amount of cash you’ll need for transportation. It could also mean getting pre-paid credit cards that won’t allow you to spend money that you don’t have. Either way, you’ll be enforcing a spending cap on yourself that is much easier to circumvent when you have unlimited funds at your disposal.
You may not reach your goal this year, or even in the next, but if you work diligently at saving for an emergency, you will always be glad that you did in the future.