How to build your Emergency Fund?

As a Financial Advisor, I always make sure that my clients have an Emergency Fund before jumping into volatile investment vehicles like getting an insurance, investing in stocks, mutual fund, UITF or a VUL. The latter offer greater long-term growth potential than cash and cash equivalents, their value can suddenly decrease in the event of an economic downturn, as the coronavirus crisis made vividly clear. An emergency fund protects your portfolio against that risk.

What is Emergency Fund?

An emergency fund is simply money you’ve set aside for life’s unexpected events such as job loss, hospital visit, roof leak etc.

Emergency Fund is a very essential part of Financial Planning but most of the time, it is neglected.

Most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months' worth of living expenses.

How to build an emergency fund?

Here are some simple steps you can take to build your Emergency Fund by Country Financial.

Add it up – The first step in building your emergency fund is determining how much money should be in it. To be comfortable, you’ll want to have at least 3 months’ worth of expenses saved up.

Start small – Three months’ worth, you say? That’s a lot of money! You’re right, knowing the amount you need in your emergency fund can be overwhelming. Start small by setting a savings goal for each week. The smaller amount will seem more manageable and the weekly goals will keep you on track. Use a savings calculator to determine what your weekly goal should be.

Automate it – You can’t spend money you never see. If you have a small amount of your paycheck directly deposited into your savings account, you won’t be tempted to spend it.

Eliminate waste – Take a second look at your budget. Where can you reduce your spending? There are always ways to bring your expenses down, you just have to decide where you’re willing to make some lifestyle changes.

If you don’t neglect your emergency fund, it will be there for you when you need it the most. The key is to keep at it. Don’t give up because the money isn’t growing fast enough. Having just a little extra on hand can make a big difference. 

How do you keep your emergency fund growing? Tell us in the comments.