The emergency fund is a popular concept in personal finance, and for good reason. It refers to the savings you should have on hand for unforeseen events such as job loss, car repairs or vet bills. The amount saved in the fund is discretionary, but enough to cover six months of expenses is a common frame of reference.
Millennials don’t have it easy. From expensive housing to the cost of education, it can be tough to find extra savings to throw toward an emergency fund, but with some careful planning there are a few ways to ensure it’s topped up and ready for those times you wish you didn’t need it (but glad you had it!).
Set a Goal
Before you get started, set a goal of how much you want in your fund. Is it six months of expenses? Is it a set figure such as five or 10k? A good first step is to figure out your fixed expenses per month. Then, think about how much you’ll need for complete peace of mind, and work to get yourself there. Splitting it up into smaller amounts and setting mini deadlines will help motivate you and make it a tad less daunting.
Create a Budget and Pay your Fund First
You can’t create an emergency fund without a plan, and creating a budget is the simplest, most effective way to ensure you top up your fund on a regular basis. There is an array of online tools out there like Mint, but a simple Excel spreadsheet works just as well. Once you’ve decided on the appropriate amount to funnel into your fund, automate the payments to align with payday.
Take a Side Gig
If it’s challenging to find extra dollars in your budget, the best fix is to make more money. Once you start looking, you’ll find that side gigs are everywhere. In fact, here’s a handy list to get you started. Commit all of your extra earnings to your emergency fund and you’ll reach your goal in no time.
Cut your Expenses
We don’t really believe it’s as simple as cutting out your daily latte, nor do we even think you have to! Upon reviewing your budget, you’ll likely find that there are quite a few expenses that can easily be slashed. Simple changes like meal planning to cut food waste or renegotiating your cell phone contract don’t take a lot of time, and can save you a ton in the long run.
Set It and Forget It
Now that you have some money in your emergency fund, you need to set parameters around how it’s to be used. For instance, purchasing a new dress or tux for a gala doesn’t count as an emergency. If you treat the fund as a regular savings account, you’ll never reach your target. Use it for a defined set of scenarios, and the rest of the time forget it even exists.
Every fiscally responsible millennial should have a financial plan, and an emergency fund is a key part of it. Plan it, fund it, and forget it. One day you’ll be glad you did.
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