Having emergency savings account in highly uncertain times like nowadays is crucial for your peace of mind. It is the last resource you could turn to when unexpected changes happen, and you need extra money. When losing your job, medical problems, home repairs, replacing appliances when they break down, helping out a family member in need, etc. Financial experts suggest to start saving three months’ cost of living, then six, eventually nine months if you can.
The lessons of the pandemic not only taught many of us the importance of having an emergency fund but also how hard it can be to create money when we instantly need it. Planning, deciding on and taking steps to materialize a safety account cannot be taken lightheartedly these days. It is time for us to create new ways of living, by thinking about and managing our finances differently, in an era when everything else is going through a major shift.
How Can We Shift our Finances
We must find a way, anyhow hard it may seem, to live from paycheck to paycheck, and put enough finances away to cover our emergencies. If you are in debt, sit down and write a plan how and by when are you planning to get out of it. You could use the many available money apps online, or ask the help of a financial advisor. Many coaches offer a free consultation to set you on the right path. Don’t overthink it, it is not as hard as it may seem!
If you find it hard to save money, you could trick your mind into associating it with insurance money you would pay for companies! By setting aside a percentage of your income each month that you don’t touch no matter what, you could create a sort of emergency insurance of which you can be proud, as well as feel more secure. In case unfortunate events may occur, you don’t have to panic, as you know you have yourself covered.
Worrying Numbers Concerning Your Emergency Fund
Even though our governments stepped in to help out businesses and employees to some extent, not all of us enjoyed that kind of support during lockdowns. According to U.S. research in 2021, about 40% of people had to access their emergency funds, almost three-quarters of them using all their funds, and nearly one-third of them lived up all of their funds!
More than half of Americans appeared to have less than three months of savings, while 25% had no savings at all, while near half of them did not feel safe concerning their emergency account! Pandemic forecasts could motivate you, even more, to put aside more money; in the next 10 years, we appear to have 22 to 28% chances, while 47 to 57 % chances of pandemic n the next 25 years! Add to it the additional emergencies that may occur.
How to Decide the Amount
Start by closely following through your expenses for a month, then two months, and eventually try to get to three months. Dedicate a specific amount to your emergency fund each month. Decide the amount by adding all your expenses, including your rental or mortgage, utilities, groceries, and transport. When you calculate these, multiply it by three, to have three months of savings put aside in your first year. Depending on your level of income, the amount may vary.
This is the best way to get by in case you are out of work for a few months, before finding new work. Whilst you are living up your emergency money, you should think of new ways to replace it as soon as possible. Always remember, if you have already succeeded in something, you can do it again! Even if you are covered by insurance, or live with someone with whom you are sharing your income and they could support you, you should still have a crisis account!
Saving Tricks – Emergency Savings Account
If you create a plan, and use tricks that help you maintain it, is the sure way to succeed! You could set an automated deduction and transfer of a specific amount of your salary each month after payday, so it could directly go to your savings account without you even realizing it! When you have enough amount on this account, you may transfer some amount to short-term bonds, or a high-yield savings account. You could still access it easily from these if you need money.
Self-Discipline is Key- Emergency Savings Account
You might find it hard to say no to a promising online course, or an alluring holiday, paying off debts you may have, etc. The solution to this is creating a list of things you can use your account for, but they should be only emergencies, such as living costs if you are out of a job, unforeseen medical expenses, unexpected home or vehicle repairs, unanticipated business, children’s, or vet expenses. The point is not to add more to your debt…
Focusing on Your Debt versus Savings
There are controversial expert opinions about whether you should prioritize building up your savings account or paying down your debt. It depends on your goals, priorities, and momentary situation, we are all different. In times of crisis, you don’t want to overstress yourself getting money to cover your living. It is always best to get rid of any debts you may have, especially those of high interest. Meanwhile, you should focus on building your side savings monthly!
A general rule in life is that balance brings long-term success, so if you can do both, it can yield optimal results. Once you start getting it, you should focus on keeping this habit so that you wouldn’t have to borrow money in case of emergency! When paying both your debt and saving for an emergency, dedicate an exact amount for both and keep notes of it monthly! Even if it is a slow process, see yourself on the other side without debt, and safe thanks to your savings!
You are the only one responsible for your financial independence, thus you shouldn’t rely on family members, friends, co-workers, your social network, or luck. It boils down to adopting a mindset that works! Even if it is hard to save without spending a dime on anything else than food and rental for half a year to a year, it is a great test in life! You will be happy when hard days come or you have no problems paying for unexpected damages or things! A happy and stable life starts with a strong foundation of finances. Best of luck!