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An emergency saving plan is money set aside for unforeseeable expenses or to cover the loss of income from a layoff or a slow down in business. This money is deposited in a bank or other safe investment.
The type of emergency fund savings plans varies. You can have a 3 months emergency fund, a 6 months, 8 months plan or 12 months emergency fund, as examples.
Whatever you want to set up as an emergency fund, you’ll first need to save money to do it.
We’re all facing a crisis now with the Coronavirus situation. This may not be the best time to start creating your emergency fund.
It may be a time just to use our resources wisely. But, if you have a few extra dollars and want to take control, here are some tips for building your fund.
This post also includes links to:
- Free Excel Budget Spreadsheet
- Money Saving Challenge
- Free Budget Printable
Check these Emergency Fund Planner Examples
Every one has a different financial situation and different needs. These are some typical ways of having money for an emergency or hardship.
You can create emergency funds according to the level of spending you want to fund during an emergency.
So, you can do a 3 months emergency fund to cover all your expenses for a period of 3 months. Also, a 12 months emergency fund will cover spending for one year.
Emergency Fund Calculator to fit your spending
How big should your emergency fund plan be?
In order to calculate your emergency fund amount, you have to estimate your total expenses for the period you want cover.
Use this Excel Budget Tracker to record your monthly expenses. Then multiply that total by the number of months you want cover under your emergency fund. That will be your emergency fund amount.
Calculator. If your total expense for one month is $3,000 and you want a 3 months fund, then you’ll need to save $9,000 for your emergency fund.
To create a 12 month emergency fund, you’ll multiply $3,000 by 12 or $36,000.
This means you can live off your emergency fund for one year if your expenses remain about the same.
Generally, it’s recommended that if you’re employed a 3 months emergency fund is enough. But, if you’re self-employed you should have 6 months to one year of spending put aside for emergencies.
Where to save your emergency fund money
Since you want your emergency plan money as soon as you need it, you’ll need a liquid account to place it.
Banks saving accounts, credit unions and most Money Market accounts are highly liquid, even though they may pay less in interest.
However, this is your emergency money, not investment funds. Also, be mindful of account management fees. Some institutions may charge you for managing your money, like in a Money Market account. These fees should be zero to very small.
Some tips and strategies for building an emergency fund
How to actually come up with the money to build your emergency savings plan.
First, you can save your way into funding your emergency plan. Look at your expenses and decide to cut 10% or 20% off every month. Then, use this saving to fund your emergency plan.
Check this post on Creating a Saving Challenge. This is an emergency fund saving plan with biweekly funding. This will help you to save money every two weeks to put aside for a challenge that you can later use for an emergency fund.
~~~How to save on your groceries every month
Second, try to negotiate with your credit card companies. You may be able to get a lower interest rate on your debt balance. Contact the companies and explain your situation. Lower interest rates will lower your monthly payment and you can use the savings for your emergency fund.
~~~5 Hacks to improve your FICO score
Third, you can try to make more money with side hustles. This opportunity to make extra money is large. So, you’ll have to decide which skills you’re going to use. What type of side hustling you can pursue like, making money online or making extra income with a more traditional off line job.
Here are some side hustling related content
Other ideas when creating your emergency fund
Building your first emergency fund is also about creating new money management habits. None of us were born knowing what to do with our money or our credit.
Some of us have made money mistakes or credit mistakes, but it’s never too late to build better financial habits.
If you’re trying to build a first or new emergency fund, don’t worry about having 3 months or 12 months fund. Just focus on starting a fund for hardships or emergencies.
Additional tips to create your fund
Start somewhere, even if you only have a small amount to begin saving. Start with $10 or $20. If you don’t already have a bank account, save the money at home. Once you have a good chunk saved, open a bank account.
Don’t use your emergency fund money. We’re in an emergency crisis at this time, so if you really have to use the money do it, you can always start saving later. But, generally you shouldn’t touch this fund, unless in an emergency.
Get into the habit of writing things down, like your budget, spending and financial plans. Putting things down will help you get control over your money. Plus, you can track your progress and your wins.
You can write down your spending with these free trackers.
~~~Free Spending and budget trackers
Final thoughts on building an emergency fund
Creating an emergency fund for the first time may be a good exercise in money management. So, as little or as much you can contribute, do it sooner rather than later.
If you have no idea where to start, take a look at your monthly spending. This amount will dictate how much you can put aside for saving.
You’ll need to cut expenses or increase your income or both to create your emergency fund. Look at your groceries budget and at your discretionary spending for saving opportunities.
Side hustling has been a thing for a while, there are many companies providing remote work opportunities. Look for ways to make extra income online and off line.
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