Life is full of surprises. Some surprises are good, like unexpected compliments or finding money in your pocket. But unfortunately, not all surprises are pleasant. Sometimes, life throws unexpected expenses your way, like car repairs, medical bills, or even a sudden job loss. That’s why it’s crucial to have an emergency fund in place. But what is the best way to build an emergency fund? Read on to learn the answer!
8 Best Ways to Build an Emergency Fund
Building an emergency fund takes discipline, patience, and a willingness to make some sacrifices. Here are 8 best ways to build an emergency fund that can help you weather any storm:
1. Instead of One Big Savings Goal, Set Several Smaller Ones
“Eat an elephant one bite at a time.” It can be daunting to think about saving up several months of expenses all at once. Instead, break it down into smaller goals. Set a goal for one month’s expenses, then two, then three, and so on. It becomes easier to tackle little by little.
2. Gradually Increase Your Contribution
If you’re finding it hard to save significant money in one go, start small and gradually increase your contribution. For instance, start by saving ₹500 a week, and once you’re comfortable with that, increase it to ₹750 or ₹1000. Keep growing it until you reach your desired savings goal.
3. Start a Side Business or Get a Second Job: Best Way to build an emergency fund
If your regular income isn’t sufficient, the best way to build an emergency fund is to start a side business or get a second job. Look for ways to monetize your skills or hobbies, such as freelance writing or photography. Alternatively, you could take up a part-time job that fits around your schedule.
4. Automate the Way You Save
In the beginning, you might miss the mark. If you want to avoid that, one of the easiest ways to save money is by automating the process. Set up an automatic transfer from your checking account to your savings account on a regular basis. This way, you won’t even have to think about or put effort towards saving – it’s done for you.
5. Sell Any Extra Items
Look around your house. Do you have extra items lying around your house that you no longer need or use? This can include anything from furniture, electronics, and clothing. Consider selling those stuff on sites like eBay or Facebook Marketplace. The extra cash you make can go directly into your emergency fund.
6. Don’t Raise Your Monthly Expenditures
Have you got a raise or a bonus? It’s natural to think about adding some extra monthly expenses to improvise your lifestyle. But you should resist that urge for a few years at least. Instead, put that extra money towards your emergency fund. This way, you won’t be tempted to spend it on things that you don’t really need.
7. If You Can, Rent Out a Space
If you have an extra room or parking lot in your home, consider renting it out. This can be a great way to generate additional income that you can put towards your emergency fund or pay your mortgage. In any case, you have the extra money in hand. Just be sure to do your research and find a reliable tenant.
8. A Liquid Emergency Fund is a Good Idea
When you start saving more money, it’s understandable to think about investing it. However, it’s essential to be careful and keep your emergency fund easily accessible instead of investing it. Keep it in a savings account or a money market account that you can withdraw from without penalty. You never know when you might need that cash in a pinch!
Having an emergency fund for surprise financial hiccups is always a good idea. But let’s be honest, even the best savers may not have enough to cover unexpected expenses. That’s when an instant personal loan can come in handy. Make sure you are eligible for a line of credit so that you can quickly get the loan you need.
Of course, you want to be associated with a trustworthy lender who offers reasonable terms and interest rates. So, be sure to do your research before taking out a personal loan.
Author Bio
Shiv Nanda is a financial analyst who currently lives in Bangalore and works with one app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics.