The Secrets to Building an Emergency Fund

An emergency fund can give you peace of mind and help prevent using credit cards or loans to cover expenses.

Building an emergency fund involves curbing unnecessary spending and prioritizing savings. You could also consider setting aside any windfalls such as tax refunds or bonuses to accelerate savings efforts.

1. Make a Budget

Establishing a budget is the cornerstone of creating an emergency fund. Once created, this will enable you to determine how much savings money needs to be set aside towards reaching your goal - it is generally recommended to save enough for three to six months' expenses in savings.

Your budget should include provisions for additional savings, whether that means cutting unnecessary expenses or taking on side jobs. Though reaching your savings goal may take some time, don't become disillusioned; take the time to review your budget regularly as changes in family, personal and work circumstances could impact how quickly it reaches its target amount.

Once your emergency fund has been created, only use its funds in times of true financial emergency, such as job loss or medical bills that exceed $5,000. Otherwise, replenish the account promptly to replenish its savings.

2. Automate Your Savings

An emergency fund is an invaluable financial security measure that can alleviate stress and potential health issues associated with financial insecurity. To build up one, consistent savings is crucial; one way of making saving easier may be automating transfers from your checking account upon payday or using programs that deposit spare change automatically into savings accounts.

Another powerful way to boost savings is by cutting unnecessary expenses. For instance, carpooling or taking public transit, bringing lunch from home for work meetings, and cancelling subscriptions no longer used can all add up quickly to substantial savings.

As part of your overall financial health, it's also wise to evaluate your goals regularly. Your family, financial and work situations may change over time and it's essential that your savings progress remains on track. Sometimes reevaluating or even temporarily pausing saving is necessary; just be sure that it resumes again as soon as possible!

3. Sell Unwanted Stuff

Your home may be filled with items you no longer require but are taking up valuable space. Instead of throwing or donating them away, consider selling them instead for some extra cash - Poshmark, Craigslist and local buy-and-sell groups are great resources to use to do just this.

An emergency fund can help protect you against borrowing money and entering debt in times of financial difficulty, providing peace of mind that can reduce stress levels and help stop overspending.

Prepping for the future starts early! By setting a budget, automating savings plans, and selling unwanted items you can take steps towards being prepared to cover unexpected expenses when they arise. For expert tips and news related to personal finance subscribe to CNBC Select; for even deeper coverage follow us on social media such as Facebook, Instagram and Twitter or TikTok (feature image credit: Flickr via Unsplash).

4. Use Your Tax Refund

Earmarking your tax refund as emergency savings is an efficient and fast way to build up a robust emergency fund quickly and avoid financial perils such as using retirement savings or incurring debt in case an unforeseen setback arises.

Even if you don't qualify for a tax refund, there may still be times throughout the year when an influx of cash arrives - like birthday or holiday presents. When this occurs, make sure that a specific dollar amount goes straight into your savings account rather than going back into checking account.

Saving for multiple months' expenses can be challenging, but starting sooner rather than later can make the task simpler. And if you find yourself still struggling, there are numerous money-saving strategies and ways to earn additional income that may help. For more advice and tips visit CNBC Select here

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