2 Easy Steps to Building Up Your Emergency Fund by Financial Freedom

An emergency fund is basically 3 to 6 months of income that you set aside which you can withdraw easily. This means that the fund is most probably in a bank account that you can easily tap into should any emergency arise.



Step #1 - Open Another Bank Account



Yes, you heard me right. Why do you have to open another bank account? It is very likely that if you were to start saving money into the same bank account, you will most probably spend the money without knowing it. The most important thing about an emergency account is to keep it out of sight from us so that we do not spend the money!



Many years ago, I wanted to set aside an emergency fund of 6 months income. It was however only 2 years ago that I managed to do so. The reason for the long delay was that I was simply spending all my money in my only bank account which I had. Whenever it reached a certain amount, I would think to myself: "Hey, I've got lots of money....why not I buy this?"



To cut a long story short, I could not succeed in building up the 6 month emergency fund because I had easy access to the account. I started withdrawing money from the fund as it was not kept separate from my other bank account. This is my BEST advice to you: OPEN ANOTHER BANK ACCOUNT.



You will of course want to make sure that this bank account does not have any high charges and stuff for things like minimum balances.



Step #2 - Deposit a FIXED sum of money EVERY month ONCE you get your paycheck



Keeping a separate bank account is Step 1. For Step 2, it requires a certain amount of discipline. The key is to deposit a FIXED amount EVERY month the DAY you get your paycheck.



This is speaking from my own personal experience. The day that you get your pay check credited into your bank account is THE DAY that you must deposit that fixed amount of money into your separate bank account (your emergency fund account).



Do not wait for a few days because once you procrastinate, you will most probably not do it and end up not depositing any money at all for that month.



Let's say that you decide to save $500 per month to build up an emergency fund. All you have to do is simply deposit or transfer the money from your normal banking account straight into the emergency fund account the moment you get your paycheck. This is to prevent yourself from spending it before you carry out the transfer.



Do this EVERY single month until you have built up your emergency fund to your desired level of 3 to 6 months income. No excuses.



Every month, you will stick to the amount you have decided and deposit it into your emergency fund the moment you get your paycheck.



Slowly but surely, you will see that your emergency fund account will start to grow. Make sure that you do not withdraw any money from it unless for emergencies.



So there you have it. 2 simple steps that anyone can take to start building up an emergency fund.


SgFinancialFreedom is a blog dedicated to help people achieve their financial freedom. This is done through the sharing of knowledge, information and experience. Find out more about the author and his journey to financial freedom at http://sgfinancialfreedom.blogspot.com


Article Source: 2 Easy Steps to Building Up Your Emergency Fund