Now that you have emerged from bankruptcy, you undoubtedly feel a great sense of relief. This fresh start is the perfect time to get your finances back in order. It’s important to remember that saving money for the unexpected is as important as balancing your budget every month. Emergencies arise when you least expect them, and for this reason an emergency fund is crucial.
“Saving money for the unexpected is as important as balancing your budget every month.”
It’s the first step
While getting back on your feet, establishing an emergency fund should be the first thing you do. It should have at least three months worth of income. Saving that much money is not an easy task, and it will take some time, but it must be made a priority.
How to build an emergency fund
You must establish goals to generate enough cash for an emergency fund. In order to be effective, these goals must be clearly defined. Determine the amount you want to save, down to the dollar, and set the date by which you want to accomplish this. Assess how much you can save with every paycheck by identifying your monthly expenses. If you can, have that money withdrawn automatically and placed into a separate account. This will help with the temptation to dip into it.
“Emergencies come in all shapes and sizes, but you can prepare.”
Avoid small purchases. While there are many purchases that seem harmless on their own, such as a candy bar or a cup of coffee, these expenses quickly add up. Try cutting these out for a few weeks, and you’ll be amazed how much money you save. Of course there are times when you’ll need a pick-me-up, but be honest with yourself: is it just a $2 cup of coffee, or is it a daily habit that ends up costing $60 a month?
Where to keep your fund
Keeping this money under the mattress is not the best idea. Talk to a bank or credit union about ways to make your money grow. Don’t let it just sit there without accruing interest. Investigate the benefits and risks involved with accounts that offer better interest rates such as money market accounts.
When to use it
If disaster strikes, you’ll be glad you have your emergency fund. Whether something goes wrong with your home, your health or your business, emergencies can take many shapes and forms, and they have a wide range of cost associated to them. Hold on to your fund until you absolutely have to tap into it.
And if no emergency happens, you will have a nice bit of savings for yourself to use as you see fit somewhere down the road.