January 28, 2023

6 Tips for Starting an Emergency Fund

By DENNIS BLACK on Jan 4, 2023

We can understand the importance of the emergency reserve, which promises to make our financial life even easier and offer a quality of life.  So, check out our post until the end and ask all your questions about the benefits of the emergency reserve.

Tips for Starting to Create an Emergency Fund

Now that you know the concept and importance of an emergency reservation for our daily lives, check below the main tips for you to create a reservation in a practical and efficient way:

1. Create a Personal Financial Plan

Before thinking about spending your money on a specific purchase, first think about the dimension of your current financial health situation. That way, you need to know how much you spend, how much you earn, where the main bottlenecks are, and which other costs are higher than others. Based on this information, you will be able to create an efficient financial plan.

The idea, of this, is to create a strategy so that you can optimize the use of your financial income, and thus, start “preparing the territory” to start your emergency reservation process.

2. Budget and Control Your Finances

When we refer to financial planning, we can see that budgeting is one of the best ways to put the emergency reserve into practice. It will serve as a map to carry out the distribution of resources and will help to define the best way to meet all the demands of everyday life.

However, just making a budget is not enough. It is necessary, first of all, to make sure that it is complied with, which will require strict financial control. Once we have determined how much will be spent per day, it is necessary to record and track all movements.

If you want to use an Excel spreadsheet to conduct this process, this can be excellent. Therefore, always seek to identify any and all movements carried out, and make a comparison with what was already foreseen. In this way, it is possible to understand if an expense is too exaggerated, allowing you to make more assertive decisions to comply with the original budget plan.

3. Work with Goals

Above all, we know that the act of living and saving money is not something extremely common to see around. Therefore, one of the first steps is to dedicate yourself to putting the economy into practice. However, to have a direction on what you should really do to compose your emergency reserve, it can be crucial to define financial goals.

In general, we can understand that the emergency reserve needs to correspond to 6 times your monthly expense. Through this, you will be able to formulate a goal of how much you should add. However, it is still fundamental to understand how we can reach this result.

The best recommendation for this purpose is to formulate the time needed to assemble the emergency reserve and the respective amounts saved per month. With this, you will have an action plan that will help you achieve your main personal goals.

4. Do Not Buy More Than Necessary

As we well know, changing habits is an important process when it comes to emergency reserve. When we decided to learn how to save, we understood that when the amount is complete, you will be able to save to invest in regular contributions.

In this regard, one of the most efficient measures is to avoid unnecessary purchases. Instead of always using your credit card for all transactions and purchases, switch to using debit payments.

However, much more than paying for items in cash, it is reflecting at that moment to seek a greater understanding of the need for that demand. If it's not necessary, don't spend it! If it's important, consider buying the item at a more opportune time.

5. Invest Regularly in Your Booking

In addition to putting together the amount of money needed to compose your emergency reserve, it can also be interesting to protect your assets. Making it not influenced by inflation, for example, is crucial so that you don't lose purchasing power.

The most important thing is to make investments in your reserve. Since it can be important to use it at any time, you need to make investments with safer and more liquid options. The idea, at this point, is to make your emergency reserve grow, and that you don't just depend on savings for the values ​​saved to grow.

6. Be Disciplined

As we well know, the act of an emergency reserve ends up being a task that can take a long time. However, much more than that, this process requires a lot of discipline from ourselves. For this reason, there is no point in having fully efficient financial planning if we are not opened to making this commitment and taking the entire process forward.

Therefore, try to stay focused on your goals by investing in all the items mentioned above. If you are a person who needs motivation, put reminders in your work corner, reminding you how important an emergency fund is for your well-being, and even the percentage of monthly income you must take to send to the account in which you want to save for the emergency reserve.