Emergency savings are a critical component of sound financial management. That being said, having a sizeable pool of funds at your disposal will always prove to be of incredible help in sticky situations. Regardless of whether you are faced with an unforeseen financial crunch or need quick cash to cover a sudden medical emergency, your seed money can be an invaluable asset to help fix any financial deficits.
So, What Exactly is an Emergency Fund?
An emergency fund may be described as savings that you stash away for covering any unexpected financial shortfalls during times such as loss of employment and medical emergencies. The idea is to keep these savings largely accessible, and not use them for paying your regular bills or covering your everyday expenses. Your emergency savings should be accessed only in cases of serious financial setbacks.
According to experts, you must keep aside at least six to twelve months’ worth of wages as emergency savings. We have compiled a list of ways in which you can efficiently build your savings without disturbing your monthly finances.
Start out Small
With their mortgage installments, credit card bills, retirement plans, and monthly bills breathing down their necks, people often find it difficult to save for an emergency fund. You can get overwhelmed by the idea of putting aside an additional component of your monthly earnings towards an emergency saving. The best way to build your seed money on a tight budget is to start out small.
The amount that you put aside every month doesn’t really matter. What matters is, making a start and staying committed to your goal. For instance, you can start by saving as little as S$10 a week or S$4 a day and then build your fund from there. Little drops make a mighty ocean, they say. It works for your finances too.
Re-Evaluate Your Monthly Expenses
Your monthly budget usually factors in expenses under two heads, namely the necessary and the unnecessary. Your necessary expenses are those that cover the necessities of life such as mortgage payments, utilities, auto insurance, and so on. These are things you need and are indispensable on your monthly budget.
On the flipside, the unnecessary expenses account for additional expenses such as gym memberships, Netflix subscription, dining out, and hitting pubs and party scenes every weekend. Now, we’re not saying that you shouldn’t spend on such activities, but that you can definitely take a step back if you’re spending too much on them.
Enlist in a cheaper gym (or simply cancel your membership if you don’t have the time to go to a gym), don’t dine at expensive places all the time, and maybe you could do without that Netflix subscription for a while.
Live well within your means so that you’re not broke and living from one paycheck to another. In order to save more for emergencies, you can make suitable alterations in both necessary as well as unnecessary expenses.
While you cannot entirely do away with necessary expenses, you can make certain adjustments to lower the costs on your utilities and grocery bills by planning ahead and making efficient use of the services. For example, see if you get discounts and offers on such necessities.
Credit cards, for instance, offer rewards and discounts when you use them to pay for a wide range of purchases including groceries, everyday essentials, and beauty products. Keep an eye out for such benefits and you should be able to save a bit of money every month.
If you find it challenging to keep a track of your monthly expenses, you might want to take the help of the many budgeting apps out there to do it for you. Smartphone apps like GoodBudget, Toshl and Wally offer a range of useful features and functionalities that help the users monitor their expenses, analyze their spending patterns, get notifications for any due payments, and more. As such, these apps are very helpful in inculcating the habit of saving and enable you to reach your target goal faster.
Channel Any Additional Funds Towards the Emergency Fund
Another way of giving an occasional boost to your emergency savings is channelizing any extra money that you might have at any given point in time, towards the Fixed Deposit fund. This will help you in managing your monthly budget more efficiently and save more without having to compromise on your quality of life.
That being said, you might want to transfer your salary bonuses directly to your emergency fund, instead of splurging on something you don’t really need right now. In addition to this, if you earn some extra bucks on a garage sale, you might want to add that to your emergency kitty as well. This will help you achieve your goal quicker. Again, it’s okay to indulge in a bit of spending once in a blue moon. Just don’t do it every now and then.
Remember, an emergency fund is meant to make life easier and not put you through the pain of a shoestring budget. That said, you must make sure to create a realistic goal that you can work towards with utmost discipline and consistency. This is a practice that will benefit you in the long run. All you have to do is to be patient and be financially responsible.
Automate Your Savings
One of the most integral aspects of maintaining consistency in your emergency savings is being self-aware about whether or not you are disciplined in your financial habits. Having said that, if you are not that regular with your savings, you might as well get your emergency fund automated. You can provide standing instructions to your bank for automatic debit of a certain amount towards your savings every month.
Depending on your unique financial situation and goals, you can choose an automatic debit schedule that helps you manage your savings more consistently. Doing this will allow you to save a good chunk of your earnings without having to put in any serious efforts.
Go on a High-Intensity Saving Spree
For those who are in urgent need of boosting their emergency savings, a high-intensity ‘Blitz’ approach might be the right way to go about it. The blitz approach is all about performing a sudden downgrade on your lifestyle for a short period of time. By drastically cutting back on your expenses for a year or two, you can easily save a lot more than you otherwise would.
This will help in reaching your emergency fund goal more quickly. Once you have been able to save the required amount of money, you can go back to a relatively relaxed lifestyle. By following this routine long enough, you can get more accustomed to leading a frugal lifestyle while saving a major chunk of your income every month. The blitz approach is the most effective technique for people who find it hard to maintain consistent financial discipline for long periods.