Build A Reliable Emergency Fund At The Start Of The Year

reliable emergency fundA reliable emergency fund is one of the most important financial tools you will ever come across. It is one of those things that you wish you never have to use. As soon as you start to consider using your reserve funds, it means that you are going through some financial challenges. None of them is a good sign especially at the start of the year.

However, you need to understand that most of your financial emergencies are out of your hands. From a broken washer, minor roof repair, medical emergency, or even job loss. These are all unplanned situations that you need to prepare for. Though there are times when your direct actions put you in challenging financial situations.

Whatever the reason is, you need to have a reliable emergency fund to get you through the toughest of situations. And there is no better time to focus on your reserve money than at the start of the year. You get a clean slate and you get to start early with it. The sooner you save extra money, the more you would have when you need it. Here are a few items to keep in mind when aim to save for emergencies at the start of the year.

Revisit your old budget

You will always need a benchmark and when it comes to saving money, you always need to take a look at your previous household budget. As the new year is here, pull out your budget for the previous year. It can help you understand what you are working with and how you can save for future. Your budget needs to be on point when it comes to your income and expenses.

Before you start planning for emergencies, you need to have an idea how much you really are earning and what percent of that is going to expenses. This gives you a clear picture of what you can work with. It also gives you an idea if you need to make some changes this year especially if you are ending up with higher expenses that your income.

Set a goal for an amount

As you make the necessary changes to your budget get a grip on the amount you can work with, you need to set a goal. You need to understand that having a reliable emergency fund has a lot to do with your expenses. This is one of the reasons why you need to take a look at your budget before you set your sets out in getting your reserve funds in order.

Once you have an idea what your expenses are, your goal is to cover one month’s worth of expenses. As soon as you have enough for one month, you start saving for two months, them three, and so on. Some people would suggest having enough for six months. This is because the average time to look for a new job is around six months according to the Balance. The amount is up to you depending on lifestyle and past experiences.

Look for areas where you can cut costs

Now that you have an idea how much you need to have a reliable emergency fund, you can now start to look for ways to save up. As you have your budget with you, try to look at the expense side and identify areas to cut costs. There will always be some items you can do away with or even some bills you have forgotten is there.

One of the items you can take a look is your subscriptions. It can be anything from a magazine to music and even unused gym memberships. Take a look at what you can take out so you can save a few dollars. You can even try to take a bike to and from work so you save on gas and even bus or train money. The idea is to identify areas to save up on and put that amount towards your reserve fund.

Identify opportunities to make extra money

As you might already know by now, the best way to maximize cost-cutting measures in your budget is to increase your income. For some people, this is a little more challenging when compared with expense cuts. This is because they need to put in a lot of effort as they look for ways to earn money just to increase their take-home pay.

The most conventional way people try to earn extra money is to get a second job. Jobs, where they get tips, is a great one such as bartending. For others, they prefer to play to their strengths. Creative people can take up design work for various establishments in and around the community. Then there are some who choose to transform their hobbies into an income-positive venture.

Where to put a reliable emergency fund

Now that you have a goal and have identified ways to save that amount, the next step is to pinpoint where you can put that money. It is important that you understand that this is a delicate balance between access and limitations. The fund needs to be within arm’s reach in cases of emergency but not too accessible that you are tempted to use it for other purposes.

If possible, try to split up your fund. You can put a few in a safe place in the house and most of them in a savings account. If your reserves get too big, you might be tempted to invest that money. What you need to watch out for is getting the fund tied up for months when you invest. It limits your ability to get your hands on it when an emergency occurs.

How it helps you throughout the year

Having a reliable emergency fund can help you secure your plans for your future. There are also a lot of things it allows you to do. For one, it allows you take a certain level of chance in life. It gives you the ability to chase your dreams if you are not in that field yet. As you transition from a day job that pays the bills to do something you love, you have something in reserve in case your finances takes time to catch up.

You need to make sure though that you still have income coming in as you chase your dreams. This way, you only tap on your reserves in case of emergency. Having extra money as back-up gives you enough freedom to take risks as long as you are doing it with your future in mind. If you simply want to take a break to try and “find yourself,” you better save up for that trip rather than using your reserve fund.

It is important to focus on saving up for a reliable emergency fund at the start of the year. It gives you the elbow room to chase your dreams and even get through life’s toughest challenges. There will be a lot of unexpected situations in life that you cannot control. A serious health issue, losing a loved one, needing unscheduled repairs at home, or even losing your job. All of which can have an impact on your finances. Your reserve funds will help you weather the storm without taking on additional debt.