Starting Emergency Funds – Personal Finance Basics

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money and stethoscope In the previous post, I wrote about the importance of having an emergency fund. Today, we’ll go over a few of the quick tips I give my consulting clients when I teach them personal finance basics regarding starting their emergency fund.

I’ll discuss budgeting, goal setting, and automating your emergency fund.

Budgeting – The first step in starting your emergency fund is to have a well planned out budget that not only gives you an idea of where you are financially, but lets you know how much money you’ll be allocating towards your budget. Budgeting is one of the first lessons in personal finance basics, and when you do a good one, you’ll find areas you can cut back so that you can put it towards your emergency fund or other financial goals. You can search Google for budget tools, or look at the resource link to our budget spreadsheet.

Goal Setting - Learning from other financial experts has been a hobby of mine as a financial consultant. I do this to make sure I’m giving the best possible advice I can to my clients. All experts who teach personal finance basics like how much money should be in an emergency fund, recommend three-six months income. I suggest a three-tiered goal setting system. Set a small quickly achievable goal of $1,000. Because you’ll hit it quickly, you’ll be pumped and more motivated to reach the larger goals. The next goals are an intermediate goal and finally, your big goal of three to six months of net income.

Automating – An important step in the budget will be to determine how much money every month will go towards your emergency fund. Let’s say you land on a monthly budget of $100 to fuel your emergency fund. As hesitant as I was with online banking, I must admit that with this personal finance basics tidbit it has saved my life. Just imagine going into the bank once a month and asking the teller to transfer $100 from your checking to your savings account. Tedious? Yes! Do you think you might forget once or twice? I would. With automation, I never do. I go online, and set up a transfer from my checking to savings account. I set it up to happen on the 1st of every month, but you may prefer to have it every two weeks, on pay-day.

I hope these have proved to be useful tips in starting your emergency fund. I hope I’ve made it easier to understand a very important component of personal finance basics. So, get started on your budget, goals, and automate your emergency fund. You’ll have peace of mind, knowing you’ll never forget to make your contribution. Your emergency fund will grow and grow to a point that it’s there when you need it. And believe me, you’ll need it.

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