Guidelines For Building An Emergency Fund
Everyone has must have experienced a state of emergency when funds are required in a short period of time, it could be for an unexpected event, or a hospital bill or any other reason. The reasons could be numerous but it is possible that every individual faces a situation of emergency funds at least once in his life time.
It is very important to generate funds which can be used in any such situation. By building an emergency fund of money will make you feel more confident and secure because you are prepared for the facing any financial difficulties or even a job loss. I have posted Deadly Requirement: Emergency Fund
There are some steps which should be followed to help you achieve your financial goal and sleep easy at night… and believe me they are easy to follow rules.
By implementing some of these rules or all of them would see your saving account growing gradually. If you are in need, the funds will always be there to assist you and even if you are fortunate and do not need it you will find yourself with a sizeable nest egg.
You can follow these easy rules to help you in building your emergency fund.
- Save your store ‘savings’: There are many times when we shop from Walmart or any other grocery store you might notice that your bill reads “you have saved $18.53 today.” You should ideally transfer this amount into a saving account especially created to create emergency fund. You will notice that you have started looking at bargains to add funds to your saving account.
- Overlook a raise: In these days of economic slowdown there are not many people who are getting a raise. If you are fortunate enough to get a raise you should ignore the amount of raise that you have received and budget and spend as you did not receive one. You can set up automatic withdrawals equal to the amount that your paycheck has increased.
- Prioritize savings: It is very important that you give saving a serious thought. You can prioritize savings and set aside the largest amount possible. You can treat you emergency saving as an addition to other bills which are required to be paid mandatorily. You can ask the bank to automatically transfer the funds from your account to your saving account which is created for making funds available during an emergency.
- Predetermine the percent: It is important that you predetermine the percent that you intend to save. I suggest you start with a ten percent saving on your total income. You can also choose a lower percent but it is important that you stick to it. Whenever you receive a paycheck or a dividend check it is important that you transfer the pre determined percent to your saving account.
- Hit away windfalls: It is very important to save extra money. You can save from smaller amounts to amounts that you have received as gifts, tax refunds, etc. you can save every extra dollar that you receive as a rebate. Even with saving smaller amounts, you will find that you have managed to increase your emergency fund to a considerable amount.
- Make work pay: The making work pay credit of $400 per worker will provide an additional $11 in each weekly pay check. To make an emergency fund you can save on these dollars because every little contribution counts.
- Save the difference in tax refunds: If you have received an income tax refund this year, you should discuss filing the new W4 form with the employer. You can avail services on IRS Online calculator to determine how much should be withheld to cover next year’s tax bill. You can contribute to the emergency fund by paying the extra paycheck cash in the savings account.
- Keep the funds in easy reach: The funds that you have collected for an emergency state should be safe as well as easily accessible. You should not invest these funds in Wall Street where there are chances that you may loose your value. The best option for investing emergency funds is to deposit the funds in CDs (certificate of deposit). The funds would continuously earn interest and cannot be spent without prudence.
- Pay it back: In case of an emergency when you have utilized the funds that you had accumulated, it is advised that you replenish the funds as soon as possible. You can start by cutting down all the additional expenses. It is suggested that you should continue making at least minimum payments on debt, and always prioritize a mortgage payment.
If you follow all the emergency fund guidelines or even a few of them you will accumulate a lot of fund that can be used in an emergency situation.