It is often said to have an umbrella for rainy days. Setting an emergency fund is very important to address your financial concerns. Many people suggest saving money for around 3 to 6 months to be safer.
Your emergency fund includes money you use every day and not regularly. When you save money, your emergency fund is one of the important, meaningful factors.
The saving game is connected to psychological behaviour. If you are not saving money and also do not give it a thought, it can be difficult for you in the future. Eventually, you have to deal with your financial concerns.
You have to be disciplined enough to save money in your emergency fund. Once you start with it, you can continue with it forever. There is no requirement to stop in the middle. Saving money for emergencies is always advisable.
It can happen to anybody and anywhere. If you are scheduled for emergencies, you can easily sail through that period.
But you need to save money for your emergency to get through your financial troubles. The below picture shows the need for an emergency fund in 2 time periods.
Source: The Statista
Maintaining a fund for your emergency
Keep your emergency fund a priority and try to put in as much as possible. If there is any contingency, you can quickly return to your fund and use that money.
But there are specific rules and techniques to set up your emergency fund. The finances has to be put in a sorted and reasonable way. Your savings should indicate a healthy picture. Your emergency fund is your saviour.
If you lose your job any day, you can turn up to your emergency fund. Alternatively, you can also plan loans for the unemployed on benefits but set your fund on a priority basis.
These loans will be helpful in your emergency times. But once you have borrowed, try to repay the loan on time.
If you are defaulting on your loan, you may be in the bad books of the lender. Try to maintain a good relationship with the lender for your future borrowings.
Tips for setting up the contingency fund
Make sure to give importance to your fund to give it back to you in your tough times.
1. Go for smaller goals
Usually, people say their emergency phone is around about 3 to 6 months. You can go even smaller. Do not set it for three months. Instead, set it for one month.
Or you can even go for less than that, which is two weeks. It is optional to set it for 3 to 6 months only. Go for the goal that is achievable and practical.
If you find setting for two weeks achievable, you can go for it. But be practical in your approach. Also, be motivated while saving for your emergency fund.
If you are setting a higher goal and you are unable to achieve it, there is no use in setting goals. Instead, it is essential to make your habit regular and keep yourself motivated.
Smaller goals often help people to achieve bigger goals. You can push yourself towards the larger goal by encouraging yourself daily.
2. Be regular in your contributions
Start with small contributions. It is not practical if you plan to put all your money into an emergency fund. Start with small amounts.
This way, you will maintain your day-to-day finances. Also, you will be saving bit by bit in your emergency fund. For example, if you earn £2000 a month, you do not need to put £200 in one go.
Instead, you can put £10.01 on one day and £10 on an alternate day. You have to maintain your emergency fund recurring. Do not give it a pause. Take regular intervals and pay to your emergency fund. More minor changes often lead to more significant amounts.
This will also help you to relieve your stress and stabilize your cash flow. Once you have come into the routine of saving money, you can easily save more money in the coming future.
3. Go for automation mode
Automating your saving is one of the effective techniques. For example, if you are operating a fund and it is linked to a specific bank account, automated. Every time, a particular amount of money may be deducted from your bank account and transferred to your emergency fund.
For this, you have to choose the amount to be transferred. Automating will help you to get all the amount for this fun.
For example, transferring money to your emergency fund may slip out of your mind if you are busy with other tasks. But with automation, you will always be on track and on time.
4. Do not open new credit cards
Once you have started making an emergency fund, do not be in a false scenario. Do not take it as an excellent financial security for your future.
Keep on saving for a couple of months. Once you have collected enough money, continue saving.
If you earn £200 a month and are only left with £50 in a month, do not be disheartened. Also, do not open up new credit cards to put finances into your emergency fund.
This can make you lighter in one place and can burden you in the other. Also, gradually you lose the site of the importance of emergency funds over time.
5. Avoid over saving
Over-saving is another issue. If you are trying to over-save, you are hampering your day-to-day expenses. This can, either way, frustrate you in terms of finances.
The crisis budget means in case of emergency. Hence, you can be slow and go at your own pace for saving. Do not be in a rush and put in major amounts in your fund.
Many people need to be aware of the emergency fund concept. To set up your fund, it is crucial to be on the right track.
An emergency fund should be taken in the right spirit and sued for that purpose only. Make sure to distinguish your emergency fund from your standard savings account.
Lisa Ann has developed a well-experienced professional career. From managing the staff of more than 50+ loan experts at Fastmoneyfinance to boosting the delivery of various loan offers, she has acquired many challenging roles to come out with the best results for the company. Lisa Ann is a Senior Content Author and the Chief Financial Advisor at Fastmoneyfinance. To back her massive experience in the UK’s financial industry, she has the postgraduate degree and diploma in Business and Finance.