Follow These 5 Easy Steps to Establish Your Emergency Fund
It’s time to prioritize the emergency fund. In fact, let’s give it center stage! Have we exhausted the topic yet? Never! The repeated emphasis is meant to accentuate the importance and freedom that comes from ensuring your family is prepared for unexpected curveballs (you know, like pandemics and mass unemployment). As we discussed in part I, many of us know that we should have an emergency fund, but we’ve neglected to take action and actually save the cash. Here are five easy steps you can use today to set you up for success tomorrow.
1. Know your expenses
It all begins with a budget. You must know where every. single. dollar. goes. Pull your credit and debit card statements from the last monthly cycle and begin categorizing your swiping habits. Once you know what you spend (and where you spend it) you’ll have a baseline estimate of the amount you need to save to cover those same expenses in the case of a series of unfortunate events.
2. Set a goal
The general rule of thumb is to have three to six months (although nine to twelve is ideal) of cash on hand to keep your household afloat in the event of an unforeseen misfortune. Start small. Set a goal to save enough cash to cover one month of expenses. Now that you know your monthly costs [see step one], determine how much you are able to allocate from each paycheck to contribute to your emergency fund. It’s ok if it’s not a gargantuan amount. Usually, the challenge is merely getting started. Once you’ve saved enough for one month, begin saving for a second month etc., etc.
3. Find an accountability partner (AP)
This may strike you as an odd suggestion. Aren't accountability partners reserved for the gym? Nope. Accountability partners are great for any challenging task, and if you’ve never been a consistent saver, you may find habitually contributing to your emergency fund challenging. If you have a friend or family member who is a great saver, they will likely make an excellent AP. They will also see the value in your effort, and sometimes simply having a cheerleader to recognize small wins will help you keep the momentum going. Once they have agreed to be your AP, share your goal and benchmarks with them. Ask them to check in with you weekly or biweekly to ensure you’re maintaining your promise to yourself.
4. Track your progress
There’s nothing more satisfying than seeing results. If you’re techy, you may love apps like YNAB or mint, which make tracking financial goals relatively simple and automated. If the thought of adding another app to your home screen makes you want to scream, perhaps opt for a post-it note on your desk outlining your contributions. Keep it simple, but keep track! Whether digital or hardcopy, the visuals will help keep you focused and accountable.
5. Be disciplined, Be consistent, Be intentional
#TRUTH, nothing will work unless you do. The safety net only saves you if you install it properly before you need it. If you’re not willing to make the financial adjustment (in some cases, temporary sacrifice) to create a cushion for your family, who will? Financial preparedness rarely exists where it was not intentionally implemented. It doesn’t happen by accident. It happens when you decide you’re going to create a positive, rewarding habit for yourself. It happens when you’re disciplined, consistent and intentional.
You can use these five simple steps as guidelines as you create your own emergency fund. Remember, start small, and don’t be discouraged. It can take a significant amount of time to save enough cash to cover six months of expenses. If you fall short of a goal, acknowledge it, refocus and do better! The great part of all of this is that you are in control. You make the rules. Positive change in your own life begins with you!
Ca$hing in on change,
Common Cents Crew
Don’t miss the other articles in this series. Read part I here.
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