You’ve probably heard of one but you may not know how to build an emergency fund.
This article describes exactly how to do it.
I’m going to go over what to focus on, how much should you put towards certain goals, and a strategy you can use if you’re currently working right now but don’t have a place to start.
Your financial plan consists of three categories: Day-to-day money, money for your future self, and risk management.
Many new people want to jump right into saving and paying off debt which is part of money for future self. However, if you don’t have an emergency fund you shouldn’t be focusing on those items.
Instead you should be focusing on building your emergency fund and that is it.
Therefore, tip #1 on how to build your emergency fund is focusing your energy and time.
Exceptions To Focusing
Above I mentioned not to focus on savings or paying off debt. That does not mean ignore them.
The first minimum would be if your employer offers any sort of 401k/403b match, get that because its free money.
If you are eligible to contribute to a Roth IRA, depending on your income level, you’ll want to put a minimum there as well. Typically, we start with a $50 minimum
If you have debt, you’ll want to make the minimum monthly payments so you don’t end up in default.
If you have credit card debt, you’d want to look into a 0% balance transfer.
All left over money from there should be used to build your emergency fund.
Emergency Fund Strategy
First, you need to know how much to save in your emergency fund.
You then have to understand that building your emergency fund also consists of building good habits.
We recommend picking one expense a month to cut.
For example, get rid of Netflix. Do this for 40 days and most likely at the end of 40 days you’ll realize you don’t need it. Then go on to the next expense. This is a budgeting technique that we’ve seen work over and over.
For the time being, let the money build up in a savings account.
Once your emergency fund is saved for then turn your focus to money for future self and your next goal.
This strategy can really help out if you’re feeling crunched for cash for the month and have no idea how you’ll save up for an emergency fund.
The tips above will help you build an emergency fund fast. The faster you build it the sooner you’ll achieve financial freedom.
If you need help, let us know. We’ve helped 10,000s young professionals between the ages of 20 & 40 get on a path towards financial freedom.
At FitBUX, we have a one-of-a-kind financial planning technology powered through our AI that allows you to build a financial plan so you can see just how much money you can put towards those 3 categories mentioned earlier. If you would like help setting up a financial plan to gain financial freedom, sign up for our membership to be able to speak to one of our FitBUX Coaches.
By David Hughes and Joseph Reinke, CFA