How To Establish an Emergency Fund and Stay Out of Debt

How To Establish an Emergency Fund and Stay Out of Debt

Unexpected events have a tendency to make an appearance when you’re least prepared for them. So how do you make sure that you don’t get caught running up debt to survive them? Whether it’s a medical emergency or an incoming hurricane, making sure you have the funds and cash on hand is important to your budget.

It doesn’t matter if you’re starting with $0 in savings or several thousand dollars, it’s important to keep that emergency fund growing. Your emergency fund is exactly that, for emergencies. So, make sure that it doesn’t get siphoned into nonessential spending by keeping it separate from your monthly budget. By staying proactive about your saving and spending, you will be more able to overcome any hiccups that you may encounter such as a sudden car repair or medical emergency.

Here are some steps to get you started:

1. Establish an emergency account

This is an account that is separate from your regular monthly expenses. Try finding an account that yields interest to help your emergency fund grow.

2. Set a goal

Baby steps, baby steps, baby steps! Try saving $500-$1000 first. This will get your fund moving in the right direction. Next, try saving a months’ worth of salary. From there you can set your sights on 3-6 months’ worth of emergency fund. And so forth. The point is don’t be discouraged and stay the course. Growing your fund is just that, growing. As much as we all wish it could happen all at once, for most of us that is not realistic.

3. Establish wants vs. necessities

Can you skip that daily latte? How about packing your own lunch from home instead of going out? Nobody says you have to quit these all together, but maybe cut back a couple of days a week. Over the course of the month, these small savings gestures really add up.

4. Save any extra money

Did you get a bonus this month? How about a tax return? These windfalls can add extra cushion to your emergency fund and give you a little more breathing room. Take advantage of extra money outside of your regular budget. 

Saving money can be a challenge, but if you stick to your goals, you will soon find yourself meeting those challenges prepared. Next time you encounter an unexpected event, you will have the confidence in knowing that your regular budget won’t take a hit and you won’t have to pull out those credit cards to survive.