An emergency fund is a specific amount of money you set aside for periods of uncertainty or suffering. One such period is the COVID-19 pandemic. Many people didn’t even know about emergency funds and their significance until the pandemic struck. Then, they realized because disasters can strike anytime, preparedness is crucial. Unfortunately, many people weren’t prepared for the financial implications that came with the pandemic.
While some found themselves receiving less income during the pandemic, others lost their jobs entirely. An emergency fund would’ve helped significantly for a couple of months. But unfortunately, most consumers weren’t prepared for the unexpected economic turn. As a result, many have learned their lesson and are now prepared to set aside emergency funds if something like this happens again in the future.
When to build an emergency fund
If you have a job or some source of income, the best time to build an emergency fund is now. Many people are still struggling financially because of the pandemic, or perhaps you’re one of those who aren’t able to set aside funds. If that’s the case, there’s no need to beat yourself up over it. Get started as soon as you feel you have both feet on the ground and can afford to set aside a little toward the fund.
Fortunately, emergencies don’t happen every day. Therefore, there’s no need to go out of your way to set aside tons of money. Instead, small or reasonable amounts every month will suffice. The idea is to ensure you’ll have somewhere to start when the unexpected happens. Over time, those small contributions will add up to a substantial amount of money.
How to build an emergency fund
As soon as you decide to save money for an emergency, the first step is to open a savings account with your financial institution – specifically for that purpose. Once you’ve opened the account, you can make the deposits when it suits you. You can do this every month. You can also search online for financial institutions that have sign-up incentives. For example, some will deposit bonus funds into your account if you open a savings account with them, which provides extra money in your emergency fund savings account.
How your emergency fund can grow quickly
Steps can be taken to make sure your emergency fund grows at a fast pace. But, of course, it can only work if you’re still receiving a steady income. If you’ve lost your job or the income you’re receiving at the moment isn’t enough, it’s understandable you may need to wait or grow the fund at a slower pace.
Growing the emergency fund at a fast pace starts with creating a budget and analyzing money habits. How have you been spending your money? Certain expenses, including rent and mortgage payments may not have changed during the pandemic, but it’s possible other expenses can be reduced. The goal is to cut expenses and spend less money.
It might seem like it’s an impossible task, but the pandemic has taught many consumers what they need to survive and what they can live without. Creating a budget and changing money habits is a great way to build an emergency fund and be prepared if the unexpected happens again.