In times of crisis and panic, there is no one, if not a few people, who would ever help you. Most of us live in a state of relative complacency, unaware of the dangers that may suddenly occur without any forewarning. May it be an accident or health problem that causes unwanted medical bills, a disaster at work that leaves you jobless and halts your earnings, a business and investment loss, or an unexpected damages of property and equipment that require spending on repairs expense, it is recommended that everyone must learn how to build an emergency fund in order to keep them off the proverbial pit of lava that seeks to engulf them with personal and financial problems, as well as with mental and emotional depression.
Accept that worst things happen
There are various ways one can use in order to build an emergency fund, but the best are simple, practical, and quite clever if you really think about it. All of them are for various situations that may be drastic and unexpected. Beforehand, your attitude towards the probability of getting caught in an emergency must cease leaning towards disbelief, as that is the normalcy bias that most people are prone to. The state of preparation is the acceptance of both good and bad in all things. Good things happen, but the opposite also can occur. But whether a positive or a negative possibility exists in the future, it is always positive to build a fund, as well as the preparedness and confidence that you will be using in whatever circumstances that will happen in the future.
Where to put your emergency fund
A lot of people build an emergency fund with short-term certificates of deposit, which is a way to put a certain amount into six-month or one-year certificates. Your motivation to not take it out is that if you do prematurely, there will be penalties and you may end up ripped off intentionally. Of course, you wouldn’t care about this in an emergency situation, so that is quite a good technique to learn. When the time is up for the certificate, you can either transfer the money to a savings account or put it in another short-term investment certificates.
The next method in the list does need a bit of work, but it is quite ingenious. If you are very diligent with accounting your finances and staying with the budget, you can take all of your written checks and round them up to the next highest amount, which means that there’s a difference between that and the real amount. You basically force yourself to be thriftier by assuming that you have spent more than you already have. That difference is then saved up in your account and piles up over time.
You can also build a buffer whenever you get a raise. Once you do get rewarded by your hard work, that is definitely a great opportunity for you to put together an emergency fund. You can either cash in all of your paychecks or count up the amount from the raise and put that into your emergency fund. You can tell here due to the theme of this article that the latter is the wiser choice.
Finally, you should acknowledge the power of loose change. This is the classic piggy bank method where you regularly drop in whatever loose change you have into a secure container and not take anything out as it accumulates into what can be described as a coin juggernaut. That helps in accumulating an unbelievable amount of cash that was started by what seemed to be a trifle. That is the power of starting small.