If your car breaks down or you lose your job tomorrow, do you have anything to fall back on? What if you get sick and can’t work for an extended period of time?
No one wants to think about these unfortunate events, but emergencies happen and this can mean unexpected expenses. If you’re tired of living paycheck to paycheck and ready to become more financially stable, you should build a solid emergency fund.
An emergency fund acts as your first line of defense when you’re faced with unplanned and urgent expenses. Financial experts recommend saving anywhere from three to six months worth of expenses, which can be difficult and take some time. If you’re currently in debt, financial guru Dave Ramsey recommends saving at least $1,000. With that said, more than a quarter of all Americans have no emergency fund and more than half don’t have enough money saved up to cover a $500 expense.
Want to make sure you’re able to pay for your unexpected expenses? Read on to learn more.
The Importance Of Having Emergency Savings During Debt Payoff
When I was waist deep in debt and eager to pay it all off, I knew I needed to build a small emergency fund first. Why? Because if a random expense popped up, I wouldn’t have to incur more debt to pay for it.
An emergency fund also protects your cash flow and allows you to keep making debt payments. This, in turn, helps you work toward your other financial goals.
How much you decide to save is totally up to your needs and preferences. The best thing you can do is break down your big savings goal into bite-sized pieces. For example, I truly wanted a $10,000 emergency fund but decided to challenge myself to save one-quarter of that amount, which still made me feel comfortable during my debt payoff. I achieved this goal.
I established a $2,500 emergency fund during my first year of serious debt repayment. I did this in just four months. How? I did one thing that I recommend you do as well. I started paying myself first.
Start Paying Yourself First
Building an emergency fund fast is no easy feat, but when you commit to paying yourself first, it becomes more manageable. Not only that but you’ll be more likely to get the results you crave. It worked for me and it can work for you too.
The concept of paying yourself first is simple and refers to sending money straight to personal or retirement savings as soon as you get paid. Think about the first thing you do when you receive your paycheck. Do you pay all your bills? Or, do you go out for a nice dinner or buy something you want? You may think that you’re doing these things to take care of yourself, but you’re actually depleting your own funds by trading your money for unnecessary resources and services. Instead, you can keep more of your money in your possession by paying yourself first. After that, you can feed your emergency fund, save for retirement, and contribute to other savings accounts.
Many people claim they don’t have enough money to save and can’t afford to build an emergency fund. When you pay yourself first, however, that excuse goes right out the window because you’re prioritizing your own personal savings over other expenses. Before I started paying myself first, I would spend money on everything under the sun when I got paid. Then I would wonder why I had no money left to set aside in a savings account at the end of the month.
I realized my process was flawed and I would never reach my emergency fund goal this way. Instead, I set up automatic transfers to a high-yield savings account every two weeks on the same day I got paid from my job. Automating essentially meant my money was out of sight, out of mind while I effortlessly grew my account each month.
Once you commit to the idea of paying yourself first to grow your emergency fund, set a clear goal based on your needs. For example, how much do you wish to save and how long do you expect it to take?
Also, make sure you consider lowering your expenses, especially if you’re not used to prioritizing savings. Odds are, you will have to adjust your lifestyle and give up some expenditures in order to save more money. While you’re at it, don’t forget about increasing your income. I got a side hustle to help me build my emergency savings and pay off debt faster.
Commit to YOU
If you don’t do this, you run the risk of mismanaging the extra money you make, making impulse purchases and inflating your lifestyle. But, if you commit to yourself, you’ll develop a solid emergency fund faster as failure or procrastination isn’t an option.
Are you ready to grow your emergency fund by paying yourself first?