No life is without its hassles, being able to successfully withstand any unexpected financial challenges will reduce worry and provide a positive outlook. Building an emergency fund is a great way to reduce the impact from unforeseen financial challenges that may pop up in the future.
What Is an Emergency Fund?
An emergency fund is basically money set aside, most often in a separate bank account to help take care of unforeseen expenses. That can arise including medical expenses, major car repairs, emergency home renovations, home-appliance repair or replacement, sudden unemployment, or a pandemic. Not having emergency funds set aside to handle these unforeseen issues can lead to high levels of stress, frustration and may leave you feeling helpless.
Building an emergency fund is not always simple, it requires planning and a strategy. Seeking the support of a financial advisor for advice and guidance can help make the journey more manageable.
How to Build an Emergency Fund?
There are a lot of differentiating strategies online about how to go about building an emergency fund. Some of it may be confusing, or slightly overwhelming. Here is a simple guide on how to begin.
Contact a Financial Advisor
It is best to contact a professional for guidance to help you set goals and to achieve them. A financial advisor will ask you several questions about your current financial situation and will help design a feasible plan.
Decide How Much to Save
Having a targeted savings amount and a time frame to achieve your goal may help keep you on track. Based on your consultation with the financial advisor which should have included your income, expenses and current savings, a goal can be set based on the figures which include weekly and monthly amounts.
Where to Put Your Emergency Funds?
An important decision that your financial advisor can assist with, is where to put your savings. Will you choose to keep it in a savings account, or perhaps an RRSP (Registered Retirement Savings Plan) or a TFSA (Tax Free Savings Account) or some other form of investment account. This decision needs to be made based on what your goals are, just remember the purpose of an emergency fund is to have quick access to funds to help handle any unexpected financial needs, so don’t tie up your funds in a long term investment.
Automate Your Savings
The easiest way to ensure you remain on track to achieve your emergency fund goals is to have a standing order on your daily banking account to enable a preauthorised amount to be automatically transferred into your emergency fund account or investment monthly.
It is never too late to start building an emergency fund, seek advice from a financial advisor, set a target, and keep to it by preauthorizing your savings transfers. You will be surprised how much money you can save in a short amount of time.