When thinking of budgeting the first thing that you aim at is saving a few dollars for that rainy day when you can be financially down. Though it is a situation that all of us wish to avoid but the fact is you may never know when life gets difficult. There may be situations that demand financial backup immediately like medical emergencies, car breakage or paying school fees. In such situations you can either look for loans that come along with high interest rate or if you are smart with your finances you can use your emergency fund backup plan. It is up to you to choose the right option.
If you take a look at of advantages of emergency fund there are many of them. The most important of them all is that you do not have to take loans or payday loans to fulfil your emergency needs. These loans can create a financial crunch as they come along with high interest rates which you may find difficult to pay back. It is thus necessary that you have a backup plan in the form of an emergency fund to avoid getting into the debt circle.
Mentioned below are some of the ways you can save up for an emergency fund:
- Maintain a proper savings account: Having a savings account is a great idea. But it will work only when you set aside some amount each month from your monthly budget. Maintaining your saving account is important as it will also fetch you a little interest that is allowed on the account. You can use this money to meet your emergency financial needs.
- Keep a track of your expenses: If your expenses are more than your income it can create a problem in your monthly budget. You may have to get loans to fill up the expense gap for the rest of the month. You will also not have money left to save for emergencies. It is thus advisable that you make a proper monthly budget plan and stick to it. Keep a track of all of your expenses and put a stop whenever you feel you are crossing your limits.
- Set aside money each month: If you can set aside some money each month from your salary your savings will improve. Before you start with your monthly expenses keep aside the little money you want to deposit in your emergency fund. Do not think about using it until it is urgently required. You can also make the savings account automatic. By this feature just after your salary is deposited in your account the amount you have set aside for savings will automatically be deducted. This will make your work easier.
- Avoid spending recklessly: Most of the debt problems arise due to reckless spending habits. Avoid spending recklessly on items that you do not need. They will only add up your dues and lead to debts. Instead save that money to fill up your emergency fund.
- Look for affordable insurance plans: Insurance plans are important to give your family financial and medical security. However taking an expensive insurance plan can be taxing on your monthly budget. You have to pay more money as instalments every month which can be difficult. It will also cut short your savings. So look for an insurance plan that covers your needs with an affordable instalment plan and also helps you save.