Finance Foundations: Building an Emergency Fund

It is not a nice to have, it is a must. 

Why You Need an Emergency Fund

Life is unpredictable. Unexpected expenses can arise at any time. An emergency fund acts as a financial safety net. It can help you cover sudden costs without going into debt or having to withdraw from your investments or retirement funds.

An Emergency Savings Fund in my humble opinion is the foundation to Financial Wellness.

Building one requires time and discipline, but the peace of mind it brings is worth the effort. 

Choose your Number

First, determine how much you need in your emergency fund. A common recommendation is to save three to six months' worth of living expenses. This amount can cover your basic needs if you lose your job or face a significant expense.

Write down your monthly expenses. Include rent or mortgage, utilities, groceries, and other essential costs. Multiply this total by the number of months you want to cover.

Open a Separate Savings Account

It's important to keep your emergency fund separate from any other savings or chequing account. Open a dedicated savings account for this purpose. This makes it easier to track your progress and reduces the temptation to dip into your emergency fund for non-emergencies.

Look for a high-yield savings account. This type of account offers better interest rates, helping your money grow faster.

Start with small, regular contributions

Before you get overwhelmed with trying to make a budget and maximize the amount you can save, just think of a small amount that you can comfortably afford to set aside when you get paid. 

Choose that amount — whether it’s $15 or $100 commit to paying yourself first when you get paid!

Automate Your Savings

Automating your savings can make the process easier. Set up automatic transfers from your checking account to your emergency fund. Choose a specific amount to transfer each month or each payday.

This "set it and forget it" approach ensures you consistently contribute to your emergency fund. Over time, these small contributions add up.

Now, boost your savings. 

Now it is time to take a look at a budget sheet and see where you can cut unnecessary expenses or where you may be overspending in categories that aren't aligned with your values. 

It doesn't mean you have to cut out these expenses forever, but it is helpful to be extra mindful on your spending until you have your emergency fund in place!

Even small amounts can make a big difference over time. Stay focused on your goal and keep looking for opportunities to save more.

Increase your money in. 

Easier said then done, but if you are struggling to put any money aside or want to superboost your savings, it might be time to explore other ways to increase your income. 

This could involve asking for a raise, taking on a part-time job, or starting a side hustle. Use the extra income to boost your emergency fund first- not to enhance your lifestyle spend.

Stay Committed

Building an emergency fund requires commitment and patience. Often times people give up since they don't see quick progress. Stay motivated by tracking your progress. Celebrate small milestones along the way!! Your first $500, $1000, $2500, $5000 etc.

Remember, an emergency fund is a crucial part of financial wellness. It provides security and peace of mind in uncertain times and finanically prepares you to have the capacity to start investing!