Life is full of uncertainties, and you may need an emergency fund to get going when things go south. An emergency fund is any money you have put aside to help you offset urgent expenses that you did not expect or plan for. While many people understand that they should have an emergency fund, they still have difficulty building one due to inevitable setbacks.
Here are 3 setbacks to building an emergency fund and how to overcome them:
1. Insufficient Income
Building an emergency fund is a hurdle for most people because they make just enough income to cover their current expenses. It becomes difficult to have spare money to save towards an emergency fund.
To overcome this setback, you can identify different ways to increase your income. This allows you to save and build an emergency fund. For example, if your current income is $3,000 every month and your monthly expenses equal $3,000, increasing your current income to $3,500 frees up $500 that you can save towards your emergency fund.
If you're wondering how to increase your income, here are a few ways to do this:
Sell items you do not use or need anymore. You can sell items on Craigslist, eBay, or OfferUp.
Offer services such as babysitting, house sitting, dog-walking, or snow clearing or sign up for TaskRabbit to get paid for helping others with their tasks.
House hack by renting available space in your house.
Sell your skills. For example, offer your skills (if you have them) as a digital marketer, social media manager, virtual assistant, graphic design, etc.
Partake in online paid surveys.
2. High Expenses
For some people, building an emergency fund doesn't come easy because they have a lot of expenses. Spending money on too many items or activities can lead to a cash crunch and prevent you from saving money for emergency purposes.
To overcome this setback and have enough money to save towards an emergency fund, you may need to identify expense areas that you can cut back on. Think of things you do not need to spend money on or expenditures you can afford to postpone to a later time, then apply a cost-cutting strategy.
For example, if your monthly gym expenses are $100, you can decide to suspend your gym subscription for a short period and work out at home. This allows you to save $100 every month towards your emergency fund until you can renew your gym membership in the future.
3. Having No Budget
When you have a budget, you can actively monitor your sources of income and areas that you spend money. It's challenging to plan around your income, identify ways to reduce your expenses and allocate money towards an emergency fund without a budget.
To overcome this setback, start budgeting and monitor your finances. Plan for every dollar of your income, itemize your expenses and plan to save money towards your emergency fund after every paycheck, even if it's one percent of your income. Having a budget allows you to manage your income, identify areas to reduce your expenses, and save more.
There are many reasons why an emergency fund is essential. If you find it challenging to build one, you may need to increase your income, cut down your expenses, manage your finances better, or adopt a savings habit that works for you.
Subscribe to the Digital Orange Juice for juicy ideas and the people who fund them. You can find out about our next pitch competitions here. Also, be sure to join our new community BGV Connect!