Did you know that 60% of people are unprepared for a financial emergency? This staggering statistic highlights a prevalent issue within our community: the lack of financial preparedness. Whether it’s unexpected medical expenses, car repairs, vet bills, or sudden job loss, emergencies can strike at any moment, leaving many individuals and families scrambling to make ends meet. I’m Yessica Sierra, the Chief Financial Officer at Camino. I hold an MBA in Finance, am currently pursuing a Ph.D. in Business, and have over 16 years of experience in the industry. Throughout this blog, I will delve into the importance of building an emergency fund while offering practical strategies for saving and steps to safeguard your financial future. Let’s dive into how small habits can lead to financial gains.
Emergency Funds:
An emergency fund is more than a financial safety net—it’s a peace of mind in the form of accessible cash. Creating an emergency fund is wise because it will positively impact your financial health overall. Life has its way of throwing curveballs, and regardless of the emergency at hand, being financially prepared can make all the difference. Let’s take a look at a few steps to help you build your emergency fund so you can be better prepared in the event of an emergency.
Step 1: Creating a Budget
The first step to financial preparedness is to create a budget. This concept comes from Luke 14.28:
“But don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it?”
This verse suggests that we should estimate the costs of a project to ensure we have the financial resources to complete it. If creating an emergency fund is the “project,” it’s essential to start by establishing a budget if you haven’t already done so. For those new to budgeting, I recommend beginning with a basic approach—listing your income and expenses to gain better insight into your finances. Check out this blog by Bank of America to learn more about how to create a budget.
Step 2: Assessing Expenses and Saving
After you have created a budget, you should assess your expenses to determine a realistic amount you can set aside each month. No matter how much or how little you can set aside each month, your contributions will add up over time. So, don’t get discouraged by starting with small amounts. Whatever your budget comfortably allows is how much you should set aside. A general rule in the world of finances is to aim for three months’ worth of living expenses. It might take time to accomplish that goal, but it is never too late to start saving.
Step 3: Segregating Funds and Avoiding Temptation
As you begin to save money for an emergency fund, you must refrain from spending any of that money on things that are non-emergencies. After all, the sole purpose of this fund is to help you in the event of an emergency. Spending that money on other things is counterintuitive to the purpose of this specific fund. To help with this, I recommend that you open a different bank account for your emergency fund so you are not tempted to use it for other purchases. This strategy not only ensures that such a fund is easily accessible but also prevents impulsive withdrawals or purchases.
The Future of Your Finances
Developing an emergency fund is an essential element of a healthy financial plan. Even if you start small, discipline and consistency are crucial to accomplishing your goals over time. And remember, the best time to start was yesterday, but the next best time is TODAY!
