Many of us understand that unforeseen circumstances may require you to pay out money you hadn’t planned to spend and might not have. To help soften the blow when this happens, you can better prepare yourself financially so you will be able to make any unexpected payments if and when you need to.
Planning is key to the success of any goal, especially financial ones. Many people may be lured into the idea of using credit cards to help them to pay costs that they can’t currently afford under normal circumstances.
However, credit cards may provide you with a short-term solution but a long-term problem. This is especially risky if your credit card debts keep adding up and you are then unable to make those repayments on top of others.
Setting up an emergency fund which acts as a financial safety net can be tricky for some people, but it is worthwhile doing it, and there are a few things you can do to help with this. There are a multitude of factors that you may need to consider when setting up and emergency fund.
If your primary source of income is very stable, then you may find it easier to save money from your monthly wages. However, if your main source of income is slightly more unstable, (for example, freelancers), then you may want to consider putting aside a larger sum of money when you can, and this will allow you to save more money in a way that is more suited to your abilities.
When building your emergency fund, make sure to include the amount of money you are required to pay your insurance company(s) for any policies. For example, if you have a car insurance policy with an excess of £500, then make sure you have this sum of money available to you in your emergency fund in case you need it.
Bear in mind that raising your insurance deductible will save money on your insurance costs, but it will also directly affect how much your get paid it your make a claim.
When determining the amount of money you wish to save, you may want to factor in your exposure to situations that may prompt unexpected costs.
For example, if you live in an area where vandalism or robbery is rife, or if you have certain needs in terms of medical care, then you may want to consider these points that you’re saving towards, just in case!
You will want to determine your ideal budget for your emergency fund, and then how you can work towards this goal.
If there are a lot of expenses that you are required to pay consistently, then your disposable income may be less than people who have significantly lower bills to pay. So, when deciding the ideal amount, you wish to save your most fund, consider your fixed expenditure before selling on an ideal figure.
Many people may find it difficult when first starting to build their emergency backup fund. However, there is a variety of things you can do to improve the likelihood of your success. One system you can put in place is to set up automatic transfers from your main bank account to your savings account.
This ensures you that you will be setting aside a specific amount of money each month from your income with the assurance it will automatically transfer into a separate savings account. Bear in mind that you may want to consider choosing a less restrictive savings account, as you may need access to your funds quickly in the case of an emergency.
Most banks have made it easy to save with quick access to accounts using banking apps that let you check your spending on debit cards as well as make transfers from one account to another with ease.
Being proactive with your finances may sound boring. However, it will help set you up for financial freedom if you’re willing to apply a small amount of effort consistently.