How to Prepare Your Home Budget for Emergencies

What would you do if the water heater broke in your home or high winds damaged the roof? If your home budget includes an emergency fund, then you would be prepared to handle these problems. Although financial experts disagree on the amount you need, there are some elements of how to set up a fund that are important to consider.

Write It Down 

The nonprofit National Foundation for Credit Counseling recommends writing down your budget. It should include a section for your emergencies and how you plan to fund them. You have multiple options to keep track of your budget, including paper, apps and websites.

For instance, you can use a personal finance app to make sure you have enough for emergencies all the time. If you prefer pen and paper, there are thousands of budget planners you can purchase to fill out every day, week or month. The goal is to find a method that you are willing to use consistently, so you will stick with it long-term.

Check Your Home Insurance 

How well do you know your home insurance policy? As you work on a budget for emergencies, consider checking your home insurance coverage and figuring out what it will cover after a storm or other disaster. You should be aware of all the covered losses and what you must do to file a claim. Although your insurance rates may increase if you file a claim in the future, it can be a good option to do it if your emergency fund cannot cover an expense after a loss. To avoid the initial shock of a rate increase after filing a claim, shopping for affordable homeowners insurance is crucial to know your options when unexpected emergencies happen to your home.

Make Cuts 

Sometimes you have to make cuts to build a home emergency fund. What can you eliminate to save money? Consider cutting out luxuries or unnecessary services that you can live without on a daily basis. For example, look at your phone bill and think about lowering it by decreasing the monthly GB allowance or reducing other fees.

Create a Separate Account 

If you are serious about having a home emergency fund, you should create a separate account for it. This could be either a checking or savings account. You want to avoid putting the money in an account that is difficult to get to during an emergency because you want easy access. You want to keep the funds liquid for this purpose.

By having a separate account, you are less likely to use the money for something other than an emergency. You will not be tempted to dip into the funds for non-emergency expenses. It will also make it easier to track how much you have saved and how much you still need to add.

Consider Home Warranty Policies 

Home warranty policies do not work for everyone, but as you think about emergencies it is worth exploring them. A home warranty covers certain items in the house such as appliances, plumbing or the furnace. Usually, you will have a contract with a home warranty company that lists what it will do in the case of a problem and how much you will have to pay.

You often have to pay a small fee for each claim you place with a home warranty company. This is called the service call fee, but it may be the only thing you pay if the repair is covered by the home warranty. In addition, you may have to pay an annual premium.

Start Small

In some cases, starting small is the only option you may have to build the emergency fund. For example, you can start by saving all of your change at the end of the week. Another common method is to save all of your $1 or $5 bills at the end of the month and put them in the savings account for emergencies.

Some people prefer to use apps to save money each time they spend or at the end of the month. One method is not better than the other as long as it helps you accomplish the goal. The key is to not get discouraged by taking the small steps and to allow the emergency fund to grow over time.

Use It Only for Emergencies 

One of the biggest reasons why home emergency funds fail is because people do not leave them alone. Instead, they dip into the fund to go on a vacation, buy a new outfit or pay for an expensive dinner with friends. The problem is not setting aside money. The issue is remembering it is only for emergencies and not to be used for other things.

You need self-control and boundaries for an emergency fund. This will not work if you cannot control your urges to spend every dime while the account dwindles to zero. Consider what will happen if a real emergency occurs, such as your furnace not working during the winter, and use this image to stay motivated.


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