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Emergency Funds 101: Tips for Building Your Fund
When you initially set out to build your emergency fund, the amount of money required and the time it will take you can be overwhelming and often intimidating. To avoid these feelings, it is important to realize that this isn’t something that will happen overnight—it is a gradual process.
The hardest part is getting started. Once you begin, just remember to make regular contributions so that you can reach your goal in a reasonable amount of time.
Here are some tips for effectively building your emergency fund:
- Do the Math: Once you’ve settled on the target total for your emergency fund and calculated how much you can afford to contribute each month, you can determine how much time it will take you to reach your monetary goal.
- Reallocate Misused Money: Reexamine your expenses and look for areas where your money could be better used elsewhere. If you’re spending a lot on gas, try to consolidate multiple errands into one trip.
- Don’t Underestimate the Value of Pocket Change: Instead of just letting your coins fall into various dark corners, create a change jar—one designated place where you and your family can deposit their change. At the end of the month, add your accumulated earnings to your fund.
- Diversify Your Resources: It doesn’t hurt to diversify your account with additional assets like dividend earnings. With this type of asset, growth is slow, so it should only be used as a supplement to a more stable source of incoming savings.
- Take Advantage of Automatic/Electronic Features: Both automatic bill payment and direct deposit are advantageous electronic services that save time and ensure you are making contributions to your savings each month.
- Reward Good Savings Habits: While it may be a long time before you reach your overall savings goal, you can make the time go by faster if you set achievement benchmarks—smaller short-term goals—along the way and treat yourself with something special each time you reach a new benchmark.
Before you get frustrated with an emergency savings plan, try using these tips provided. You may be surprised at just how quickly you can start saving.
For more information on emergency funds, read here.
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