Financial security can sometimes feel like an illusion. We have no control over our careers, the economy or the weather, so how could we possibly have control over our finances? Even with our greatest intentions, life always seems to throw us a loop. Just when we think we are advancing, we seem to lose our financial footing and brace for another financial setback.
With all that life gives us, it can be difficult to focus on our current financial obligations and plan for our financial future. But what if there was a way that you could regain financial control? What if you could build your own safety net so that you can face future financial setbacks with ease? What if you could pursue your savings and debt goals without having life impact your financial dreams?
Building an adequate emergency fund is the key to regaining that control. An emergency fund allows you to maintain financial security and have funds readily available in the event of loss of a job, accident or injury, sickness, disability, major home or car repairs, and so on. It allows you to be financially proactive instead of constantly reactive.
Having an emergency fund is also the secret to avoiding the cycle of debt. Most people continue to spiral into debt because they lack the savings to cover unexpected financial costs. When these financial obligations arise, they quickly pull on credit cards or lines of credit, or even re-mortgage their homes. An emergency fund enables you to adapt to these life changes without creating financial hardships.
The rule of thumb is to have 6 to 12 months of your income saved within an emergency fund. This may seem daunting or impossible, but the key is to start somewhere. Make sure you have a plan and do not leave saving your emergency fund to chance.
Here are 3 quick steps to get started:
1. Calculate How Much You Need to Be Secure
Based on your financial needs and obligations, decide how much of an emergency fund you would desire using the ‘6 to 12 month rule’. Set a target date for when you want this achieved and calculate how much you would need to save each month to get there.
2. Open Your Emergency Account
Your emergency fund should be in a savings account which is separate from all other accounts. When you have all your money in one account, you run the risk of depleting your funds for other purposes, leaving little to nothing left should an emergency arise. Open a savings account that is easily accessible and designate this as your emergency fund. The funds should only be touched in an emergency and should never be used for day to day needs.
3. Build Your Emergency Fund Each Month
Create an automatic savings plan so that your money is automatically transferred into your emergency fund every month. This ensures the money is saved and not spent. Continually check in on your progress to stay on track to meet your target date.
You can also reach your target date quicker by depositing any extra cash you receive into your emergency fund. This could include bonuses from work, tax refunds, financial gifts, and so on. You could also review your monthly spending to see if any expenses can be reallocated to emergency savings, even if only for the short term. For instance, if you can reduce your shopping budget by $100 each month, then put the money towards your emergency fund while you are building it up.
Financial control is within your reach – it starts with building an emergency fund to protect and secure your financial future.
Vanessa Bowen is a Chartered Professional Accountant (CPA) and Master Neuro-Linguistic Programming Practitioner (NLP) and the Founder of
Mint Worthy, a personal finance coaching platform that helps women shift their relationship with money and take control of their finances.