How to Start an Emergency Fund

by Gily Tenorio on January 9, 2012

in Personal Finance

I think many readers of this blog will agree with me that most of us don’t want to be in an emergency situation because it is stressful and it entails extra spending. As much as we avoid emergencies, you and I cannot ignore that it can happen anytime. Sometimes we are not prepared about it in terms of our emotion and financial aspect.

Most of the emergency situations that people encounter cost money. For example, the tire of your car is damaged and needs immediate replacement or your son broke his arm prompting you to send him in the hospital. If you don’t have enough money during this situation, maybe you will incur debt through your credit card or from relatives. However, if you have an emergency fund, it will be a very helpful tool during emergency cases to provide you enough money.

I listed some of the ways I carried out to create an emergency fund for my family. Although, it is not yet that big, the important thing is I regularly add some money to make it bigger. I suggests you also start how to build an emergency fund for you and your family so you can get some money when unexpected situation arrives. Here’s some tips to start an emergency fund.

1. Make saving a priority

Once you’ve decided to create an emergency fund, you should make saving money a priority. It is a must now, not an option. Making saving a priority means you will set aside a certain amount of money every payday and you will not spend it. At the beginning, it is quiet hard but as you continue doing it, it will become normal habit to you.

By prioritizing saving, you should determine how much money you should set aside and put in your emergency fund. I recommend you to save at least 10% of your salary and then transferred it to your emergency fund account.

2. Open an automatic savings account

One best way to save money regularly and faithfully is to open an automatic savings account. It is like a regular savings account but it automatically withdraws money from your payroll account depending on the date you set. You can choose the date and the amount of money you want to transfer from your payroll account to your auto-savings account.

It will be better to make the date one day after you receive your salary or income to make sure you have enough money. Opening an account is easy because some banks allow opening an account via online application or you may try to visit the bank if you have enough time. One example of automatic savings account is BPI Direct Save-Up which you can also monitor via BPI express online.

3. Avoid debt

As much as possible, don’t get debt especially if you will only buy for luxuries and stuffs. It is better to buy things if you really have the enough money rather than borrowing to someone else just to buy the things you want. If you’re an impulse buyer, it will be better to stop using your credit card and only use cash for your purchases. In this way,you will prevent getting too much debt from your credit card.

4. Reduce spending

If you want to start an emergency fund, you should cut back and reduce your spending so that you have more money to save. Determine which purchases are necessary and those that you can eliminate from your expenses. It will be better if you can make a list of your purchases in a spreadsheet for one month so you can know where you spend money the most.

After you reduced your spending, some of the left money can be added to your emergency fund.

5. Make more money

There are lots of ways on how to make more money even you’re working with a company. You could start learning on how to make money online, do freelancing jobs like writing articles, selling stuffs in eBay or Sulit, affiliate marketing, networking and many more if you are patient only to research about it. Get some percentage of the money you earn from this venture and put it on your emergency fund.

An emergency fund can be a good source of money when you needed it the most so you must start to build your own fund right now.

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