5 Tips for Preparing Emergency Funds for Safe Finances

5 Tips for Preparing Emergency Funds for Safe Finances – Everyone, perhaps including you, often forgets how important an anticipatory attitude is towards various things, including finances.

Most people in this world will be anticipatory when something has happened, not long before it happens.

Where you only think about preparing an emergency fund after your finances are truly in an emergency.

Unfortunately, collecting money to prepare an emergency fund is not easy, it could even be said to be quite complicated, especially because there are many other expenses that must be met.

According to a survey published by the Blackrock company, money is a major source of stress, especially for millennials.

Quoted from Business Insider (2019), the percentage of stress due to finances in millennials is greater than stress due to family, work and health, reaching 63%.

Then, why does everyone need to prepare an emergency fund?

There are times when sudden needs must be met while your current budget is limited for other needs.

If something happens and you need fresh funds to deal with it, then an emergency fund is the solution.

For example, a disaster occurs that you cannot predict in advance.

You can use the emergency funds you have as recovery for the problems you are experiencing.

Therefore, if you have decided to start preparing emergency funds, here are several things you need to do now.

1. Understand the Current Condition of Your Finances

How much do you earn each month?

So, how much do you spend each month?

Know your current cash flow so that later you also know how much money you can set aside for various needs, such as saving, investing, and preparing emergency funds.

To make it easier, don’t forget to record your cash flow.

Create special bookkeeping for your finances.

Apart from being useful for monitoring expenses that are actually not important and can be reduced, this will make it easier for you to set aside money specifically for an emergency fund.

2. Determine the amount of emergency funds you must prepare

Say, in one month, you have to prepare 5% to 10% of your total income specifically for an emergency fund.

You can do predictive calculations for things that might happen later.

For example, the cost of repairing your car or motorbike if it breaks down and needs to be repaired is $300.

Not to mention, if your house is flooded you will suffer a loss of $5,000, for example.

In these two cases, this means you have to prepare an emergency fund of $ 5,300  for this month or next month.

That is the emergency fund target that you must prepare to overcome various existing emergency problems.

You can use various predictive calculations on various problems such as the two examples above as a reference.

You can also add several examples of cases such as medical costs, children’s school needs, and business expansion.

If you already have a target, then you can know where to start preparing your emergency funds. Follow the next tips, okay?’

3. Open a New Account Specifically for Emergency Funds

After determining the amount of emergency funds that need to be collected in the future, the next thing you have to do is open a new account specifically for emergency fund savings.

The aim of opening a new account is to distribute your money more regularly so that your emergency fund budget will not be diverted to financing other needs.

Also consider opening an account at a banking institution that does not require a large initial balance when you first open an account and has lower monthly administration fees.

You can also use opening a new account to save.

So, your savings are not disturbed and are not diverted to paying for your other needs.

4. Start Slowly

The next tip for preparing emergency funds is to start slowly.

Don’t be too paranoid when you start.

Because, that doesn’t mean you have to allocate most of the money you have directly to an emergency fund.

Start slowly as long as it is routine and consistent.

Also Read: 5 Simple Ways to Save Emergency Funds, Don’t Get Into Debt!

This emergency fund preparation is long-term in nature, and is not something you can do quickly and complete immediately.

Do it like when you were paying off your debt.

Even if it’s slow, as long as it’s consistent and keeps you motivated to collect more.

5. Press Expenditure

The final step is to reduce your expenses.

Reduce spending on things that are not really urgent, especially if things are not in the ‘important’ category .

You can look for alternatives for certain products that are cheaper, but offer the same functions and benefits.

Like detergent products, you don’t need to buy high-priced detergent, after all the cheap ones have the same quality and maybe smell better.

The more you reduce expenses, the more money you have left over to be allocated specifically for an emergency fund.

Apart from that, you can also influence yourself to be non-consumptive to help reduce expenses.

What is next?

After applying the tips for preparing emergency funds above, now routinely collect emergency funds by slowly setting aside your money specifically for these needs, just like when you save.

It’s just that, when you collect emergency funds, you will use these funds for various urgent unexpected needs.

Author Profile

Ritesh Sharma
Ritesh Sharma
Ritesh Sharma is a seasoned professional in the field of finance and career development, bringing a wealth of experience spanning over a decade. Holding a Master's degree in Business Administration with a specialization in Finance, Ritesh has carved a niche for himself in the realm of content writing. His expertise is predominantly in areas related to finance and career growth, where he has consistently demonstrated his ability to deliver insightful and valuable content. Over the years, Ritesh has established himself as a knowledgeable and reliable source, offering his readers practical advice and information that is both relevant and up-to-date. His dedication to his craft is evident in the quality and depth of his work, making him a respected figure in his field of expertise.

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