An emergency fund is an essential safety net that everyone should have in their financial portfolio. The collection of savings can help you manage unexpected, urgent expenses immediately after they happen.
Without an emergency fund, you will have limited options for handling emergency expenses that don’t fit inside your budget. You could use your credit card to cover the expense, as long as your balance is nowhere near the limit. Or you could look into online loans that you’re eligible for in your state.
If you happen to meet all of the qualifications, you can apply for an online loan and wait to see whether you get approved. With an approved loan, you can use the borrowed funds to cover your emergency expense in a short amount of time and then follow a steady repayment plan.
Ideally, you should have an emergency fund to help you in these stressful situations. You will want to have between $1000-$2000 in there to handle smaller emergencies. After reaching that target, you can try to save three to six months’ worth of your income in the fund — this will give you enough savings to stay afloat during times of financial instability (for example, you lose your job).
Read ahead to find out how you can optimize an emergency fund so that you reach those savings goals faster:
1. Automate Your Contributions
One of the simplest ways to optimize your emergency fund is to automate your contributions. That way, you can guarantee that you’re adding to it every single month and not letting it stagnate. You can automate savings transfers through your online banking so that your contributions go straight into your emergency fund at the beginning of the month.
2. Take Advantage of Windfalls
You’re bound to get a windfall every once in a while. Maybe it’s a bonus from your workplace, an inheritance from a relative, a cash prize from a competition or a large tax refund from the IRS. Whenever you receive one of these windfalls, make sure to take a portion of it and move it into your emergency fund. It will instantly boost your safety net and get you closer to your ultimate savings goal.
3. Change Your Account
If your emergency fund is sitting in a standard savings account, you might want to move it into a high-yield one instead. A high-yield savings account allows your savings to earn interest, helping your safety net grow over time.
Be aware that many high-yield savings accounts have qualifications like minimum balances that you’re expected to meet (unless you are willing to pay additional fees). Once you have the minimum amount saved up, try to open one of these accounts and transfer your emergency savings there.
4. Avoid Unnecessary Withdrawals
Your emergency fund isn’t an additional savings fund that you can dip into whenever you want. If you’re not experiencing an emergency, you should leave the fund untouched.
Making a habit of withdrawing from your fund when you don’t actually need to will sabotage your ultimate savings goals. You’ll whittle down your account and leave yourself with a smaller amount of savings to resolve emergency expenses. Not only are you undermining the fund’s growth, but you’re also making yourself more vulnerable to future problems.
Don’t go without an emergency fund for another day. Get started on this safety net right now and follow these simple tips to help it grow.