Keeping an emergency fund is a vital part of every sound financial plan, whether personal or business. This fund serves as a shock absorber that protects from sudden financial emergencies.
An emergency fund can protect you from overwhelming debt and financial disaster. However, with most people barely earning enough to make ends meet, setting money aside for an emergency fund is difficult. This article explores simple ways to quickly build an emergency fund without undue financial strain.
5 Strategies to Build Your Emergency Fund
An emergency fund is the money set aside to protect you from unplanned and unexpected financial demands. No matter the nature of your job and income size, you can build a reliable emergency fund that keeps your mind at ease. You can try some of these strategies to speed things up:
1. Reduce Your Expenses
In theory, your income is split between expenses and savings, which are directly proportional. That means the more you spend, the less you save, and vice versa. To build your emergency funds speedily, focus on saving more from your income.
You can achieve this by spending only on your needs and putting off your wants. Create a budget to help you differentiate your needs from your wants and guide expenses. The budget should also include the amount you want to save in your emergency fund, placed in the priority section.
Remember, this strategy does not prevent you from enjoying the good things of life; it only allows you to prioritize building your safety net. After building, your budget will enjoy more space for wants.
2. Automate Your Savings
Everyone knows the importance of saving. Many even plan to save, but few follow through on their desires and plans. This deficiency is not always due to indiscipline. Some simply forget to set their savings aside, while others use an ineffective strategy.
You can improve your savings through automation. Choose a simple strategy to transfer money directly from your account to your savings account. This way, you won’t forget or hesitate to set something aside. For example, you can set up an automatic transfer from your salary account to your savings account. You only need to choose an amount, and the bank will automatically transfer it to your savings account upon receiving your salary.
3. Earn Extra Income
If your income can barely handle your daily necessities, the best way to build an emergency fund is to earn extra income. Many ways exist to achieve this. You can negotiate more pay if you’re an especially skilled worker. Alternatively, request more time or shift to earn more.
You can also take up another job or explore side hustles online or offline. Completing simple tasks online or sharing your space or properties for paying clients can provide extra earnings. Explore the Internet for websites and apps to earn passive income.
4. Save your Tax Refunds
If you file for a tax refund and receive one, it is an excellent opportunity to build your emergency fund. Tax refunds in the U.S. and Canada usually amount to thousands of dollars. Such a large amount can tempt you to take a vacation or make a luxury purchase. However, prioritizing your financial safety net will help you direct your refund toward your emergency fund to fortify it.
5. Keep Unexpected Money
Besides your regular income, you could get unexpected money through an inheritance, gifts, bonuses, or an asset sale. Saving this unexpected money or a fraction of it helps you build your emergency fund without financial strain.
Exploring Short-term Loans for Emergency Funding
Despite your best efforts, sometimes your emergency fund may be insufficient to cover your financial demands. In this case, exploring a short-term loan is ideal to help you handle your emergency.
Short-term loans are loans that must be paid off within six to 12 months, at most 18 months. These loans are easy to get, making them suitable for emergency funding. If you need short-term loans, you can explore any of the following options:
1. Personal Loans
Most banks and financial institutions offer short-term personal loans to help individuals handle emergencies. You can get this loan from your bank or any financial institution you transact with.
Personal loans offer many benefits, like easy approval and a flexible repayment schedule. Many banks will give you a short-term personal loan even with a low credit score. For short-term loans, they focus on your current standing, not your previous financial mistakes.
2. Payday Loans
Payday loans are short-term loans that must be repaid in full when the borrower receives his next paycheck. Financial institutions offer this loan to help individuals handle emergencies and short-term costs.
Employees enjoy payday loans because they offer numerous advantages over other short-term loans. The benefits of payday loans range from easy access and approval to seamless repayment.
Payday loans have few requirements for approval, and almost anyone can qualify. You can even get a payday loan despite a bad credit score. These loans do not require security, and you have peace because you know when and how to repay the loan.
3. Online Loans
Many financial technology (Fintech) institutions offer short-term loans through their online banking platforms. You can use this as a source of emergency funding, especially when you transact with them. Some loan apps will even give you limited offers as a first-time customer.
Online loans are easy to access; the entire application process and disbursement occur online. They also offer a flexible repayment schedule and do not request security for your loan.
Endnote
A good financial plan must have an emergency fund. Although necessary, building one with a low income can be difficult. Despite your income level, you can explore simple strategies to build a reliable emergency fund. Start by reducing your expenses, then automate your savings, increase your earnings, and keep unexpected money. If you encounter a financial emergency your fund cannot cover, supplement it with a short-term loan, like a personal, online, or payday loan.
