Credit: Matthew Henry via Burst
You want to start an emergency fund so that you can handle any financial hiccups at a moment’s notice. To make sure that you’re making the most out of this fund, you should follow these tips to improve it:
Have a Backup Plan:
If your emergency fund is still in the beginning stages, you might not have enough savings to cover an unexpected expense. It won’t be much of a safety net until you fill it out.
To give yourself a better sense of security, you should think about applying for a line of credit. A personal line of credit can come in handy when you need help for emergency expenses and you don’t have enough savings available. If you’re approved for the open-end credit tool, you can request a withdrawal within your credit limit and use those funds to deal with your problem quickly. You’ll need to manage repayments later on.
An emergency fund is a good backup plan. But until there’s enough money inside of it, you will want to have a second backup plan, just in case.
Make It a Part of Your Budget:
Your emergency fund won’t grow very fast when you only toss money into it occasionally. That’s why you should make emergency savings an essential part of your monthly budget. That way, you’re making habitual contributions every single month.
If you don’t have a budget yet, this is your chance to get started. Download one of the top budgeting apps on your smart phone and start organizing your expenses right away.
Take Advantage of Windfalls:
Your emergency fund will grow steadily as you add your monthly contributions into it. There is one thing that you can do to speed up the saving process: use windfalls to your advantage. Windfalls like bonuses from work, tax returns, lottery winnings, cash gifts, and inheritances are all things that can help you boost your fund in a short amount of time.
You don’t have to use the entirety of your windfall for your emergency savings. Take a reasonable fraction of the windfall and put it into your account. Do whatever you want with the rest.
An easy way to boost your savings is to download one of the best round-up apps on your smart phone. These apps round up purchases made with your debit card and divert the leftovers to your savings account. The savings will be so small (under a dollar) that you won’t notice that you’re making them. But over time, they’ll add up and give your fund a little extra padding without you even thinking about it.
Pick the Right Account:
One way to improve your emergency fund is to move it into a high-yield savings account. A high-yield savings account has a higher interest rate than traditional savings accounts. So, by moving your emergency savings into an account like this, you can help them automatically grow.
However, high-yield savings accounts come with some strings attached. Many banks have requirements for initial deposits and balances, and they can charge additional fees when you fall short. So, make sure that you have enough funds on hand before taking on this decision.
These tips will make your emergency fund better from the very beginning. Now you don’t have to worry about any surprise expenses hurting your finances.