Some of us know all too well to expect the unexpected because accidents will occur sooner or later. That’s why an emergency fund is a key part of any financial plan. It’s hard to predict what curveballs life can throw your way and how much it’ll cost you financially. Who could’ve predicted that there will be a pandemic that could be so life-changing for so many? I know a few well-to-do fine dining restaurant waiters who are now struggling to make ends meet. That’s why setting aside some cash is crucial. Without a cushion, a small emergency can cause significant financial harm if you have to start borrowing from high interest credit cards.
It’s really a great feeling when your emergency fund reaches a healthy and stable amount. You can ease off saving a little and stop worrying so much. But what happens when you have to use your emergency fund? I’ve heard numerous stories from friends these few months who had to completely deplete their emergency fund. All of a sudden, they were back to square one. They have a long and tough road ahead of them as they rebuild their emergency fund, but it’s something that must be done. If you are faced with this situation, here are a few tips to get you started.
Reduce Spending ASAP
Before you take a step back to decide on your next steps, immediately take steps to reduce all discretionary spending. Without the luxury of having an emergency fund to fall back on, it’s important to kick that frugal mindset up to notch. After all, you need to start saving to get your emergency fund back in good health. Put your income towards necessities only and put the rest towards savings. Then figure out which luxury you still absolutely want to keep.
It’ll be tough for a little while, but as they say “this too shall pass”.
Reevaluate Your Budget
Reevaluate your budget next. If you’re lucky, you only had to spend a small chunk of your emergency fund and you still have the bulk of it left. Or maybe you had to spend it all in one go. Determine how much you need to save and use your budget to help you get there. Find areas you can reallocate and categories you can cut back on. If you don’t have a budget, then ask yourself why you don’t have one. Use this chance to motivate yourself to start one. It’s not that cumbersome to keep it updated once you get started.
Don’t ignore the power of having a budget and don’t let this opportunity slip by again.
Explore New Income Streams
Rebuilding an emergency fund can take a lot of time. Unfortunately, time is a luxury we won’t always have. Your goal is to replenish the funds as fast as possible and that can be hard to do on your regular income. Even if you make quite a bit, new streams of income will help you save more quickly since any additional income can entirely be put into your emergency fund. There are unlimited ways to make some more money. You can sell stuff in your home, pick up a second job, or do some freelance online work for others looking for help with their website.
You can even start a side business. Many successful ventures are started during tough times. It’s partly due to people losing their jobs and being forced to make something happen. Another major reason is that people who need to survive will be much more motivated to make something work out. Use the motivator wisely and you could one day even be grateful that this set back happened to you.
Learn and Improve from the Last Go Around
If you’ve built up an emergency fund and had to dip into that pot of money, one of the positives of the whole ordeal is that you now have some experience dealing with financial emergencies. You already know what it takes to start an emergency fund and add to it. You also know how to withdraw money from those accounts and use the funds for your needs. Look back on what you did and improve on the process.
Do you want to keep the funds in the same type of accounts? Did you take too much risk with that money, or not enough? Was it easy enough to access that money when you need it? Did the sum grow at all while it was in there? Did you pay too much taxes on that money? There’s bound to be things you wished you did differently or better to save up even more. Take the time now while you are building up the fund to make adjustments.
Keep your goals in mind as you embark on rebuilding your emergency fund. Understand how much you need to save and how you’re going to do it. And replenish the fund quickly. You never know when the unexpected will stick again. Last but not least, aim to make it even better than your last fund.
Originally posted at https://moneyning.com/money-management/4-tips-to-rebuilding-your-emergency-fund/