Step 4 on your road to financial literacy: Why starting an emergency fund is vital to your financial wellness
Congrats! If you have followed the last 3 steps you are well on your way to being financially fit! Here is the next and final step for setting the foundation on which to grow your wealth — the almighty emergency fund.
Life is messy, unpredictable, and downright chaotic at times. Having that emergency fund is like having your very own superhero cape, ready to swoop in and save the day when you need it most. Unexpected medical bills, car troubles, or family emergencies are going to happen. Having a stash of cash makes handling the unexpected less stressful.
An emergency fund isn't just about surviving the unexpected; it's about thriving in the face of adversity. Think of your emergency fund as an investment in you. The more money you have in your fund the less balance you will need to put on your credit cards, and the less hard-earned money you will be giving to a credit company!
Now, I know what you're thinking: "But, I'm barely scraping by as it is! How am I supposed to squirrel away money for a rainy day?" I've got some tips to help you get started. A general rule of thumb is to aim to save at least 3-6 months of your expenses in your emergency fund. But don’t let that overwhelm you! Just start!
First, set a goal. Whether it's $500, $1,000, or even $5,000, having a target in mind will give you something to strive for. Break your target down into bite-sized chunks. Decide how much to pay yourself each week. As time passes add a little more to your weekly savings.
Next, automate your savings. Set up a separate account specifically for your emergency fund and schedule automatic transfers from your checking account. That way, you won't even have to think about it, and watch your balance grow.
Finally, cut yourself some slack. Building an emergency fund takes time, and it's okay to start small. Remember, every dollar counts, so celebrate those small victories along the way.
Whether you're a seasoned saver or a total newbie, there's never been a better time to embrace financial security.
Follow the four-step process:
Create a household cash flow analysis
Create a credit card list with balances and interest rates
Choose which credit card to start paying larger than minimum amounts on each month and do it.
Build an emergency fund.
This process may take you 6-24 months to complete. But if you follow it, I can promise you will make better financial decisions for yourself that can lead to increased wealth and security.