When it comes to your personal finances, it’s good to follow the adage that it’s better to be safe than sorry. Paring your budget down to its last dollar so that there is no room for additional expenses is a risky move. Instead of making a big gamble, you should think about putting some of your money into a rainy-day fund.
Why Do You Need It?
A rainy-day fund has nothing to do with the weather outside or the predicted forecast. It’s a small supply of money that you have sitting around to help make financial emergencies easier to get through. Some people make one because they fear instability with their employment situation, so they have a bit of padding if they have a sudden cut in hours or get laid off.
You don’t need to fear for your job to start putting a little bit of money away in an account or physical jar. There are many crucial reasons to use an emergency fund like your family has a baby on the way or you have fallen ill with a condition that health insurance doesn’t cover and that makes it difficult to work. No matter the situation, you will be relieved when you have a financial safety net to fall on.
Emergency funds can also help with one-time costs for unfortunate accidents like car collisions or tree branches falling onto your roof, especially when you don’t have insurance coverage. If you don’t have money ready for this type of situation and you need to fix it fast, you can turn to the company MoneyKey to get an online installment loan to get through the rough patch. It can be so quick that you can get the money that you need the day after your application.
The resolution is not as convenient as having a rainy-day fund on hand but it can be an easy choice if you’re looking for fast ways to borrow some cash and accommodating ways to pay the sum back. Instead of going through the long lines and slow application processes of traditional banks, you can tackle your problem with a fast loan straight away.
How Do You Start One?
If you’re planning on starting an emergency fund you should aim to save enough to cover three to six months of expenses — this will depend on your current income and financial situation. If you’re unsure about that percentage, try to put as much as you can away in a high rate savings account.
Some people prefer to store their fund in jars or envelopes, so they can see the bills that they have collected over time. A good spot would be in an emergency kit designed to get you through disasters like storms, floods or hurricanes. As long as you store it in a safe place, you will appreciate having a pile of cash ready for you to use.
How Do You Save?
Trim down your budget by cutting down unnecessary costs like nights out in restaurants, trips to movie theatres or shopping sprees to update your wardrobe. You don’t have to eliminate these activities from your life entirely but try to limit them as much as you can. In a matter of months, you will have a considerable amount of money saved from skipping non-essential payments.
One really easy trick to save money is keeping a jar in your kitchen and putting all of your change inside of it — you can come up with more than a hundred dollars in coins over the course of a year. Follow a method called the penny challenge where you place a single cent into the container on the first day. Day by day, you raise the price that you have to put into the jar so that it snowballs into bigger savings.
It may seem pessimistic, but it’s good to prepare yourself for the worst possible situations. Your house has insurance for fires and your car has coverage in case of accidents — consider this emergency fund to be a form of insurance for your livelihood. Having a little money tucked away will make sure you don’t go into a panic if something ever goes awry.