Why you should build an emergency fund?
Having an emergency fund is not only a way to feel safe in case you would need some cash, but also tells a lot about you and your relationship with money.
Personally I call it the freedom fund, as it gives you freedom to:
- Say no to a job you hate and give you some extra time to find a new one
- Spend some time off work building your financial freedom
- On the opposite, say yes to an opportunity you would normally not taken as you wouldn’t have enough funds
- Or invest when the opportunity arises
It also gives you a peace of mind:
- In case of redundancies or illness
- If something will go wrong with a business you want to set up
As a mentioned before having a freedom fund tells a lot about your relationship with money:
- Do you know how to save money? Are you consistent and systematic at setting aside some funds?
- Are you responsible with your spending habits and do you have control over your money and not the opposite? If you have an emergency fund it’s you who control your finances!
- Do you feel safe? Different things happen in life, are you prepared? You may lose your job or need to pay for a repair of your roof.
Are you ready to set up your emergency fund? Here are some tips:
First of all start with calculating your minimum monthly spending: include your rent/mortgage, bills, food and any other necessary expenses (no, weekly Margarita in your favourite bar doesn’t count! ;))
Furthermore think about your personal situation – do you have mortgage, business, are you responsible for your partner/kids? Depending on your answer you want to save between 3 to 12 months of your monthly expenses.
I would add some extra in case of unexpected situations (your cat decided to train long distance jumps on your TV and unfortunately.. it didn’t make it..the TV of course ;)).
When you know what’s your target think about the amount of money you will be able to put aside as savings each month and..be consistent!
Finally if I could give you one advice on saving for your emergency fund I would say:
PAY YOURSELF FIRST!
It may sound crazy, but once you will learn to put your money into a saving account before paying your rent and bills you will be no longer tempted to spend that extra money.
I can guarantee it works – tested on myself 🙂
Wishing you plenty success in building your freedom fund.