5 Ways to Start Building your Emergency Fund

This is a continuation from my first post on What is an Emergency Fund and Why You Should Have One. This post is going to show you some tips and ideas on how you can start to build your emergency fund if you have yet to do so

(Image source: http://www.inc.com/magazine/201405/alexa-von-tobel/need-for-freedom-fund-savings-living-expenses.html)

Move your emergency fund to a separate account

As a first step, it would be good to move your emergency fund to another bank account instead of the one that you regularly use. This is clearly show the amount that you have set aside for your emergency fund as well as preventing you from "accidentally" using the money for your regular day-to-day activities or thinking that you have more money to spend than you really do.

Stash away your bonuses

This is one good way to start building your emergency fund. Depending on the amount of bonus you get, your emergency fund can be built within a few years. Instead of spending your bonuses or other windfalls that you may come across, put this money into the separate bank account that you have set up for your emergency fund and it should be able to be built up quite quickly.

Cut down on daily indulgences

Some small indulgences such as the daily cup of coffee from Starbucks can set you back quite a fair bit. By reducing or even eliminating some of these indulgences, you are able to find some savings that you can put towards building your emergency fund. These indulgences also include junk food, desserts, even smoking for some. By cutting down on these, you not only build up your emergency fund but also live healthier.

Transfer a fixed part of your salary

You can transfer a fixed amount of your salary to the special account monthly for a period of time. If you didn't get a chance to see the money in your regular bank account, you wouldn't plan on spending it in your monthly budget. This may take a while to build up your emergency fund depending on the amount that you transfer, but is a steady method to start building up your emergency fund. After your emergency fund has been built up, it's still a good habit to keep, which you can use when saving for retirement.

Put raises that you get towards it

You should also use the raises that you get from your job to help grow your emergency fund. This also helps to prevent lifestyle inflation, which is when your living standards increases as your income grows. Continuing to live at the same standard of living after getting a raise is possible, you've done it before anyway. This tip can also be used towards building your retirement fund after your emergency fund has been built up.

Hope this has been a helpful post on how to start building your emergency fund. If you are still not sure of why we should have an emergency fund, look at my previous post on What is an Emergency Fund and Why You Should Have One.

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