Building Your Emergency Fund

Jul 28, 2021Saving Strategies

If there was ever a time to be reminded of the importance of building an emergency fund, it was when the COVID-19 pandemic hit. Those without an emergency fund soon realized they were not immune to financial disaster and learned the only way to minimize the damage is to have a fully-funded emergency fund.

Most financial experts recommend building an emergency fund that can cover three to six months, or up to a year of your essential living expenses, which can be overwhelming. Instead set an attainable goal for yourself.

Here are some practical guides on how to build an Emergency Fund

  • Take an inventory of your finances. Write down how much your take-home pay is, then organize all your expenses. Start with the essentials (needs), obligations (debts), savings, and non-essentials (wants). Assess all your household expenses to see where you can minimize or eliminate unnecessary costs. Create a budget and track your spending. The only way to get a clear picture of your finances is to track every penny you spend. It doesn't matter how you chose to manage your money; a good ol' pen and paper or budgeting app like MX money management. Make sure to include your emergency savings contribution within your budget and treat it like another essential expense. 
  • Set a goal. Saving six months' worth of expenses might sound downright impossible right now--and that's a normal reaction. Instead of feeling overwhelmed and giving up on the idea, choose a smaller goal and gradually increase it. When you're just starting, aim for $500 in your fund; once you've reached that goal, congratulate yourself, then set a new goal of $1,000. Remember, everyone's situation is different. It might take you longer to build your emergency fund but don't get discouraged. The most important thing is that you start saving and start building your emergency fund brick by brick so that when the "big bad wolf" decides to visit, you are protected. 
  • Create a separate account and automate your deposit. Open an emergency savings that is dedicated solely to your unknown expenses. To prevent impulse withdrawals, keep your emergency savings separate from your regular account. Set up automatic recurring transfers into your emergency savings account. The key in building your emergency fund faster is consistency; set the amount, frequency, then automate your contribution. Your emergency savings should be a separate category from your general savings goals--where it is meant more for specific expenses such as a vacation or a new car. As a rule of thumb, to be effective, your emergency fund can only be accessed for real emergencies--like sudden unemployment, unexpected medical emergency, or a critical home or vehicle repair. 

We all know that life happens, so START looking at building an emergency fund account through a different lens. You can treat it as a 'life happens" fund or insurance to help you cover unforeseen expenses. Remember, your emergency fund is about your peace of mind when life decides to disrupt your journey. 

 

Speak with a HAPO Financial Coach to get you started towards your goal of financial freedom!

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Mylene Leasure

Mylene Leasure

Financial Education Coordinator | HAPO Community Credit Union

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Emergency Fund / Checking Account / Savings Account / Saving