Tips to Grow Your Emergency Fund, and How Much Should You Have?

Emergencies always happen at the most inconvenient times. Without having a backup option to cater for unexpected expenses, you may end up interfering with your budget and your long-term plans. For example, a costly car repair (or a huge deductible for medical treatment) can throw you off your feet, financially.

An emergency fund comes in handy to cushion you against such expenses. It’s similar to a savings account, but think of it as an emergency cash reserve for unexpected costs.

How Much Should You Have in the Fund?

If you live alone, a good starting point is to keep a minimum of 3 months of your living expenses in an emergency fund at all times. This means if you need $2500 a month for all your monthly expenses, keep $7500 in the fund.

If you have kids and other dependents, keeping a minimum of 6 months of living expenses is advisable. Your ultimate goal should be to keep a year’s worth of expenses in a fluid emergency fund. This means that you should be able to access the money easily (as soon as an emergency expense occurs). Here are a few ways you can start, and grow, your own fund:

Learn to Pay Yourself First

The secret to building your emergency fund is to pay yourself first. When you get your income, set something aside even before you begin offsetting bills. A good idea is to open a savings account, and have a portion of your income automatically deducted every month. A proper saving culture is the most effective way of growing your fund.

Sell Something You Don’t Need

To give yourself a head start, look around the home for items you don’t need. You could find old toys, unused electrical devices, or furniture that you can sell. Use the proceeds of the sale to start an emergency fund.

Look for Additional Income Opportunities

If your budget is tight, consider gaining additional income. This could be a second job or a one-time opportunity such as filling out online surveys.

Cut Down on Your Expenses

Many small expenses tend to add up during the course of the month. Look at your budget and see where you can cut-costs. For example, consider downgrading your cable-package or setting your thermostat temperature a little lower.