When times are difficult, many are hard-pressed to cope with the financial crunch. What adds to the despair is where to draw the funds in case an unforeseen expense comes around. However, it’s easier said than done especially when making ends meet is already challenging as it is.
A Test Of Financial Maturity
The usual grumble about setting up a buffer fund is the inadequacy of funds to even cover the recurring expenses. Conventional wisdom in personal finance states that an emergency fund is a way to rescue you from a ‘future’ financial misfortune. In essence, you need to level up in terms of financial maturity.
6 ways to build an emergency fund for rainy days
1. Draw up a roadmap
In any endeavor, particularly when it comes to saving money, there has to be a fine blueprint. You need to draw up a road-map to guide you achieve your financial goal. It would be best to set a definite monetary target over a period of time.
2. Plant the seed money
Once you have a road-map in place, avoid detours and follow the route accurately. You don’t actually need to allocate a greater chunk of your income at the start.
The first thing is to assess your net monthly take-home pay. Compute all basic, recurring expenses and other payables. From the remaining cash, set a fixed amount that shall be your seed money. Save this amount monthly from here-on and perhaps increase gradually when permissible.
3. Take control of your spending
Be business-like as you build your emergency fund. Even blue-chip companies implement cost-cutting measures when the situation calls for it. The same applies to personal finance. You can free up some of your money by preparing your own packed lunch to work, doing away with junk food, and curbing your smoking or drinking vices. You can also save more when you sacrifice other items you can live without like magazine or cable TV subscriptions. Every penny counts so resist the temptation of indulging on non-essentials as well as impulse buying.
4. There’s no reset button
The greatest pitfall in building an emergency fund is when you lose steam midway in your journey. Treat this mission as a game without a reset button. Unless of course that you’re aborting the mission because of a “real” emergency.
In truth, working to grow your emergency fund is a test of determination. It’s not a switch that you can turn on and off. The objective should be to fulfill the goal because it carries more weight beyond the present. What is at stake is your future financial security no less.
5. Look for other income sources
Resourceful individuals will not rely solely on their regular incomes in their quest to build an emergency fund. Having a second or third source to supplement your current income would be helpful. There are boundless earning opportunities in this era of the digital world.
If you have the talent to do online jobs like blog and article writings, graphic designing, and other tech-related or even non-tech-related stuff, earn from it. Sweat it out too if odd jobs in the retail and food service spaces are available. Take advantage of your propensity to earn while you are in your productive years.
6. Avoid impractical borrowing
One reason why an emergency fund is important is that it averts the need to borrow and pay for interest cost. However, there would be instances when borrowing is inevitable. Unfortunately, many are caught in the debt trap simply because they’re borrowing for the wrong reasons. The biggest blunder is borrowing to pay off debts unless the intention is consolidation. Impractical borrowing is like digging your own sinkhole which will eventually lead to financial misery.
A financially mature person will make use of available credit facilities for a specific purpose. Taking out loans mean you have the capacity to repay them while preserving a good credit standing. That last thing you need is to lose access to credit due to a negative CCRIS record. You become bitter when you’re working just to pay for debts. Hence, borrow to get ahead, not to trouble you.
The Safety Net
Life is full of surprises that you need to roll with the punches at times. Some blows are manageable but financial emergencies hit the hardest. A buffer or emergency fund will serve as your safety net to cushion those blows.
You’ll even thank yourself if you succeed in building a cash reserve for any eventuality. Not every day is sunny but when dark clouds appear, you know you have enough to shelter from the rain. The advice to set up an emergency fund, although repetitive, is always well-meaning not exaggerated. Act fast. Prepare now.