5 Tips to Building an Emergency Fund
Building an emergency fund should start as soon as you have your own income. If you put it off and found yourself facing an unexpected expense you can end up in debt. Or if you are already in debt, it is still advisable to build an emergency fund as you work towards settling your accounts.
Determine how much you need
If you suddenly lose your source of income, how much money would you need each month to maintain your current lifestyle? Take this amount and multiply it by four to seven months to determine the amount of emergency fund that you need.
Choose where to keep the fund
Ideally, your emergency fund should not be easily accessible that you might be tempted to withraw money when you’re in a pinch. Once your emergency fund has reached a significant amount, consider investing it in a mutual fund or a UITF which yields better interest than a regular savings account.
Treat it like a bill
Commit to saving up for your fund before a specific day of the month, just like you would treat a utility bill with a deadline. As Robert Kiyosaki put it, “pay yourself first.”
Use only for emergencies
An emergency fund should only be used for the unexpected. If you have recurring annual payments like insurance or car maintenance, do not use your emergency fund to pay for them even if you intent to ‘pay it back’.
Take it slow
If you are just starting to build your fund, commit a small amount you are confident you can live without each month. Invest your windfalls, too. Take the slow, steady steps and you’ll get there.
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