What is an Emergency Fund?
Also known as the “Rainy Day Fund”, an emergency fund is an account with money designated for set emergencies only. Although, you can have multiple accounts for different types of savings goals; like a wedding fund, a new car and etc
But for your e-fund, it might as well be called the vault, because money comes in, but rarely goes out. While it sounds like the most boring thing in the world, it’s awesome and chances are, you need one!
Why You Need One
Have you ever heard of Murphy’s Law? It basically means if anything can go wrong it will go wrong. Murphy isn’t a very positive fellow, but you should heed his law. By having an emergency fund, you will be able to deal with these incidents in a relatively painless way
Let’s say you didn’t have an e-fund and your car breaks down. How are you going to pay for it?
You could put it on a credit card but then you have to pay interest. You could borrow the money from a friend or family member but it might hurt your pride a little and could cause tension in the relationship until the debt is fully repaid.
Enter your new best friend, your emergency fund! You have the money saved up and can get the car fixed without hurting your finances, ego, or relationships. Doesn’t sound so boring now, does it?
4 Ways to Maximize Your Savings Goals
You might be thinking, “But saving money is hard! How will I ever build up an emergency fund?”. Thankfully, there are four ways to reach your savings goal by maximizing your emergency fund.
1. Open an online savings account
There’s really no excuses not to have your savings account online these days! Not only is it super easy, it’s also very convenient since you can access your money on the go. On average, you’ll get a better interest rate on your money compared to a traditional savings account.
Also, most transfers between brick and mortar banks and online banks will take two business days. Why is that awesome? Because it takes the ease out of impulse shopping!
You’ll be surprised to find how often two days of thinking about a purchase will change your mind about spending. If you haven’t looking into opening an online savings account, now’s the time to do it.
2. Automate your savings transfers
It’s 2013, folks! You do not need to mess around with manual transfers and bill payments anymore. Set up an automatic transfer between your checking and savings accounts each payday, before the funds even hit your account.
Better yet, set up your direct deposit to automatically deposit a set amount into your savings. This simple trick will ensure you don’t miss money that you never see! And it won’t take long for those small transfers to add up to a big safety net.
3. Fund it by selling items you don’t need
Everyone has stuff laying around in their homes that they don’t need or want. Turn these unwanted items into cash and use that cash to boost your emergency fund.
Post your high value and/or easily shippable items on eBay and your larger and/or mid range items on Craigslist. Your lower value goods can be sold at a good, old-fashioned garage sale. You just turned your “junk” into peace of mind.
4. Set a daily reminder
Building up an emergency fund is not the sexiest use of your money, but it is one of the smartest. And it’s important to remind yourself of that fact every day, otherwise you’re likely to spend your hard-earned money.
How do you do that?
Put a post-it on your credit card that says “Peace of Mind” to make you think twice about purchases. Set monthly savings goals for yourself and then try to beat them. Make the decision that financial stability will last you longer than the expensive pair of shoes you’ve been coveting.
Once your emergency fund hits your goal you can revisit the need for those purchases. Only this time, you’ll know that you are covered in case of emergency. New shoes and financial stability? Now that’s cute idea