If 2020 taught us anything, it is that we need to always be prepared for the unexpected
. If you currently find yourself in debt and dealing with the repercussions of not being financially prepared for the unknown, you’re not alone. One way to prevent this from happening again is to make your emergency fund a priority in 2021. Paying your way out of emergencies is better than having to borrow on credit cards and loans.
The general rule is to have three to six months of expenses saved up in your emergency fund. Here are some tips for getting a jump start on your emergency fund in 2021.
1. Set A Monthly Savings Goal
Chances are, if you're already in debt, it’s unrealistic to think that you could sink half a year's worth of expenses into your emergency fund this year. Stick to a reasonable goal that will challenge you but is possible for your financial circumstances. Even saving $500 is better than nothing. You will need to take a close look at your expenses to determine what is realistic for you.
2. Automatic Payments
Once you have your monthly goal in mind, set up automatic transfers from your bank account into a savings account. This will help you make a habit of saving and also prevent you from spending money you should be saving on things you don’t really need
3. Count Your Change
Change is so often considered a throwaway currency these days, but it can be really useful when it comes to your savings. Keep a coin jar. Any spare change can go in the coin jar. You could even throw in any $1 bills you get from breaking larger bills. There are apps that will link with your checking or savings account to round up on purchases. The extra change is automatically transferred to your savings account. It may not seem like much, but this adds up over time.
4. Save Your Refunds, Bonuses, and Gift Money
A great way to boost your emergency fund is to save all or some of your tax refund, bonus, or any unexpected income. You can even set up your refund to deposit directly into your savings account to avoid the temptation of spending it. Even if you can only afford to put a portion of this money towards your emergency fund, it can make a difference down the road.
5. Monitor Your Progress
Do a monthly check-in on your progress to see how you are doing. Depending on what you see, adjust your saving techniques accordingly. Keep in mind that while building an emergency fund should be a priority, going slow and making sure you are still managing your other financial needs is also important. If you need to change your goal halfway through the year due to a change in your financial circumstances, that’s ok.
Putting some extra cash away in a designated emergency fund can be the difference between "just" making it through an emergency or finding yourself in major debt