Having an emergency fund is as important as ever. No matter how much you plan, the unexpected usually happen. And the sooner you have money set aside to deal with these unforeseen expenses, the better off you’ll be.
Even if you aren’t prone to panic attacks or fear of financial doom, knowing how to get an emergency fund for when the unexpected happens can help save you from financial ruin.
The longer it takes you to save money, the more expensive and risky your savings get. But with a few simple modifications to your current routine, it’s not as difficult as you might think. Let’s take a look at what an emergency fund is, why you should have one, and how to get one for free.
What is an Emergency Fund?
An emergency fund is money set aside specifically for unexpected expenses such as a car repair, medical bill, or a family illness. The money should be enough to pay for three to six months of living expenses.
If you don’t have the money set aside yet, you should try to find an affordable way to save for the emergency fund. If you don’t have the extra money saved up, you may have to borrow from your regular bank account to meet some of your escalated monthly expenses.
Why Is an Emergency Fund Important?
When the unexpected happens, you don’t want to fall into a hole of debt from which it’s difficult to climb out. Luckily, most unexpected expenses can be easily covered with a little cash. If you don’t have the cash in the bank yet, you may be tempted to spend it all in one go. While this is better than going into debt, it’s not healthy and can have a long-term impact on your finances. Part of having an emergency fund is programmedness.
If you have money saved up, chances are you won’t go into debt. This will help you save money in the long term, even if things are bad now. Having an emergency fund can also help you avoid another recurring problem: debt. If you have a small emergency fund, you’re less likely to fall into the trap of mounting debt.
How to Get an Emergency Fund for Free
The emergency fund myth continues to spread. People are under the impression that they need to put away money each month to build up an emergency fund. This is not the case. You can have an emergency fund without putting money away each month. The key is to have a plan and to stick to it. Here are three tips that can help you get an emergency fund for free:
Tip 1: Set deadlines. While it’s great to have a general emergency fund in place, you have to make time for it.
There’s no point in saving for something that you don’t need right now. If you have a flu or a bad cold, you should be able to save for your health. But if you don’t have a specific emergency, save for everyday bills first.
Tip 2: Pay your bills on time. There’s a good chance that you don’t need to pay your bills immediately. In fact, you may be able to negotiate a payment plan that lowers the amount you’re required to pay back. This applies even if you have a cosigner on your loan.
Tip 3: Don’t touch your debt. Even if you have the money saved up for a trip to the doctor, you shouldn’t payoff your credit card bills just yet. If you don’t need to use the credit card right now, pay it off as soon as you can. This one is crucial.
The Big 3 (Banks, Credit Cards and Loans) Are Still the Biggest Risk to Your Emergency Fund
Unfortunately, some of the oldest financial products on the planet still pose a significant risk to your emergency fund. The three oldest financial products still clog up our financial system. And although they were heavily regulated, they still carry significant debt for banks and credit unions.
These products are: bills interest loans If you have an emergency fund of $500 or more, according to experts, you may be able to get away with a single bill. But if you have $500 or less in your emergency fund, it’s better to have a plan.
The Best Way to Increase Your Emergency Fund Size
Some people are able to save a small amount each month without even realizing it. They may even have an emergency fund of $500 or $1,000. But for many people, the emergency fund is the only money they have set aside for unexpected expenses. It’s possible to increase your emergency fund size without any additional effort. That’s because many people are already saving.
But what if you want to boost your emergency fund size even more? What if you have $5,000 or more in the bank? For these people, the best way to get an extra $50 or $100 is to make a large unexpected purchase (such as a car repair or medical bill) and then save the majority of the purchase amount in an interest-bearing savings account.
If you’re able to save a large amount each month, you’ll be able to cover larger expenses and still have money left over for emergencies. This can come in handy when you’re Medina’s wife and have to take care of the kids while the husband is in the hospital.
Conclusion
The best way to get an emergency fund for when the unexpected happens is to have a plan and stick to it. By following these three tips, you can get an emergency fund for free.
