When it comes to saving, most people think about their retirement. Having a rainy day fund, however, is equally important. It can save you from serious financial trouble during unexpected situations while also enhancing your saving and spending habits.
A little bit of budgeting and planning will be needed to save some money for emergency situations. Here’s what you’ll need to do:
Make a Reasonable Commitment
Believe it or not, everybody can save a bit of money on a monthly basis. Based on your income and your expenses, calculate a reasonable commitment that doesn’t affect your regular expenditures. It can be a small sum if it needs to be. What matters is setting this money aside every single month.
Get in the habit of dedicating this money to the rainy day fund as soon as you receive your income payment. This way, the temptation to spend will be trumped.
Cut Back on Select Types of Expenditures
If you want to dedicate an even larger sum of money to the emergency fund, you may want to think about a few lifestyle changes.
Reducing household bills, the amount of money that you spend on entertainment, dining out and clothing are all good possibilities. You don’t have to deprive yourself in order to cut on spending. You’ll simply have to discover alternatives that cost less than the products and services you’re used to.
Invest the Money
A rainy day fund doesn’t necessarily entail hiding money in a jar or underneath the mattress. Investing the money opens opportunities to leverage tax-free savings accounts and earn interest towards your contributions.
Easy-to-liquidate mutual funds are an investment tool of preference for individuals who have an emergency fund. A few other investment options include short-term bond funds, a bank deposit and even purchasing investment gold. To select which investment option is right for your situation, we recommend meeting with an adviser at your bank.
Adjust the Paycheck Withholding
As time goes by and your income changes, you may find out that you need to make an adjustment in the sum dedicated to the emergency fund.
Reevaluate Your Goals
It’s a good idea to reevaluate your goals every once in a while. For example, let’s assume that in 18 months your emergency fund reaches your target amount. At that point, it will be up to you to reevaluate and decide whether to continue saving more or to decrease the amount.