Reported by Liku Zelleke
In these tough economic times, it can be difficult to stash money for a rainy day when it’s pouring all week. A simple emergency at home is more often than not covered by paying with a credit card or a loan.
A survey done by the Federal Reserve in 2014 showed that 47 percent of Americans said they were unable to pay for a $400 emergency expense. This inability to pay for emergencies and the lack of preparedness usually leads to maxed out credit cards or paying dearly on short-term loans.
But that doesn’t have to be the reality for everyone. With a little effort, almost anyone can put together an emergency fund to fall back on.
Here are a few tips on how to go about it, via USA Today:
Take it step by step. Although the aim is to create a fund that can cover major emergencies like unemployment and an economic downturn, it should be started with the aim of covering lesser expenses. An ideal starting figure would be anywhere between $500 and $1,000.
Create an ideal major emergency fund. This should keep an individual (plus family) secure for at least three to six months. Although it might seem like a lot of money to save, it will help make recovery a lot easier come crisis time. The figure can be calculated as “expenses that are absolutely essential (food, shelter, utilities, etc.) minus those that aren’t (cable, online subscriptions, etc.).”
Budget! When saving money from income becomes difficult, the best way to go is to get on a budget and save via cutbacks. Things that aren’t absolute necessities or luxurious expenses can be stopped — at least until your financial goals are achieved.
Pay off your debts, asap. Debts are big bottomless holes that can wreak havoc on finance and wealth. They should be paid off as soon as possible. The longer a debt is carried, the more interest it charges, which will add to the overall amount. This is especially true in the case of large debts on credit cards, which apart from causing immediate financial strain can have long-lasting effects by negatively impacting credit scores.
Most people should be able to build an emergency fund by following these simple yet critical steps.