How to Prepare for a Financial Emergency
Only 49% of Americans consider themselves financially secure. Do you?
One in 10 don’t have any savings. About 14% have between $1,000 and $4,999 in savings. Without enough in your account, you could struggle to pay for a financial emergency.
Use these tips to start adding to your rainy-day savings account. With these tips, you’ll have peace of mind. Feel more secure during financial emergencies!
Set a Goal and Budget
Establish a SMART goal to give yourself direction. SMART goals are:
For example, you might set a goal to save $1,000 within three months for emergency car repairs. For a general emergency fund, create a bigger, long-term goal. Aim to save between three and six months’ worth of general expenses.
Having a specific goal in mind will help you stay motivated. Make sure to set a specific monetary amount for your goal. You can break that larger amount into smaller chunks.
For example, if you want to save $12,000 within 12 months, aim to save $1,000 every month.
Breaking your larger goal into smaller goals can make it easier to stay on track. Seeing your progress along the way will also help you remain motivated.
Consider rewarding yourself as you accomplish your smaller goals.
Celebrating your successes can help you remain motivated to accomplish your larger goals.
Once you establish your goal, remain consistent. Even with slow progress, consistency is key to building your emergency funds.
To have money for an emergency savings fund, you need to avoid overspending.
Take the time to calculate how much you’re spending each month. Segment your spending into categories. For example:
Once you review your expenses for the month, determine where you can stop spending money. For example, maybe you subscribe to multiple streaming services. Consider removing a few for a few months.
You can put that money toward your emergency fund instead.
Create a Budget
Once you cut out unnecessary expenses, set a monthly budget for yourself. Creating a budget will allow you to put more toward your savings.
Consider establishing a budget for each of the categories mentioned above.
To stick to your budget, consider giving yourself a weekly cash allowance. You can slowly watch the cash disappear from your wallet. Put whatever you have left over at the end of the month into your savings fund.
Take advantage of any one-time opportunities you have to save money. For example, you can put your tax refund toward your emergency fund. If you receive money for your birthday or a bonus at work, save it!
Maintain Financial Health
Try to maintain healthy finances.
First, ensure you have adequate income. If you can’t afford your monthly expenses, you’ll struggle to save money.
Try to increase your cash flow by seeking additional income. For example, you can:
- Find freelance work online
- Test websites and apps
- Take surveys
- Blog with affiliate links
- Sell items on Etsy
- Publish an eBook
- Walk dogs
- Sell used clothing
- Become a tutor
Leverage your skill set to start making money. Put anything you earn toward your savings account. Store your emergency fund in an account separate from your checking or general savings.
If you’re unemployed and don’t have another source of income, use this Sassa Status Check. You could be eligible for a grant for up to six months.
Try to pay off your debt as soon as possible.
Consider looking into a debt consolidation loan or balance transfer card. You can better manage your debt while reducing interest charges.
Try using the snowball technique. Pay off the smallest of your loans first. Then, move on to the next largest debt.
Continue with this process until you’ve paid off every account.
Otherwise, try using the avalanche method. First, make a list of the:
- Payment information
- Total amount due
- Minimum monthly payments
- Due dates
Arrange your debts from the highest interest rate to the lowest interest rate. Determine the minimum payment for each account. Then, consider how much you can pay toward the highest interest rate account.
To remain consistent, try saving automatically.
For example, you can set up recurring transfers from your checking account into your savings account. Contact your bank to get started. You can decide how much you want to save, and how often you want to transfer funds.
Remain mindful of your balance when using this technique. You don’t want to incur overdraft fees. Make sure there’s always enough money in your checking account before the transfer automates.
You can also save automatically through your employer. Determine if your company makes employer-based contributions to your retirement fund. Ask if you have the option to split your paycheck between your savings and checking accounts.
You won’t have to think twice about moving money into your emergency savings account.
Prepare for a financial emergency by gathering everything you need ahead of time. Gather your:
- Household identification
- Medical information
- Financial documentation
- Legal documentation
Household identification includes copies of your driver’s license and social security card. Have identification for everyone in your household.
Medical information includes Medicaid or Medicare cards, disability documents, and insurance cards. Draft a list of the medications you take. You might also need documentation for your medical power of attorney.
Financial information proves your income and financial responsibilities. You might need these documents to apply for disaster relief. They could help you regain access to your financial accounts.
These documents include tax returns, lease or mortgage information, and financial account routing numbers. Have a copy of your will or trust, too.
Prep for a Financial Emergency Today
You never know when an emergency might drain your savings account. Use these tips to prepare for any financial emergency. You’ll have peace of mind knowing the funds are available.
Start preparing for a rainy day today.
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