{"id":22077,"date":"2019-03-01T17:02:36","date_gmt":"2019-03-01T15:02:36","guid":{"rendered":"https:\/\/www.bondora.com\/blog\/?p=22077"},"modified":"2019-03-01T17:02:36","modified_gmt":"2019-03-01T15:02:36","slug":"emergency-fund-how-and-where-to-set-one-up","status":"publish","type":"post","link":"https:\/\/goandgrow.eu\/en\/blog\/emergency-fund-how-and-where-to-set-one-up\/","title":{"rendered":"Emergency Fund: how and where to set one up"},"content":{"rendered":"\n
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Earlier this month, we discussed emergency funds and went over 7 reasons why you should have one<\/a>. We stressed the importance of only using an emergency fund for a real <\/em>emergency\u2014perhaps a medical expense, a home or car repair, or suddenly finding yourself unemployed (with more reasons listed in the post). As the term \u201cemergency fund\u201d is fairly self-explanatory, we covered what it is in its simplest form\u2014basically is a stash of money that you set aside in case of emergency. As an emergency fund can take a few different forms, in this post we\u2019ll delve further into the what by covering some options as to how and where to set one up.<\/p>\n\n\n\n

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How to set up an emergency fund<\/h2>\n\n\n\n

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As with anything, there\u2019s no one correct way to go about setting up an emergency fund\u2014there are many variables, as each person\u2019s situation is different. No two people have the exact same income, monthly expenses, or job volatility and nor do they have the same ideas as to what amount would make them feel secure. That said, we can offer some advice that should suffice as guidance for most people to take and run with.<\/p>\n\n\n\n

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Decide how much money you should save<\/strong><\/h3>\n\n\n\n

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This question is probably the first thought for many when looking into setting up an emergency fund. Most people will tell you to save enough to cover your living expenses from anywhere from three to six months (some say a full year). Typically, this is an average amount of time it may take for someone to find a new job if they\u2019re laid off. The exact timeframe is relative, however, and you ultimately should really think about how much you would need to save to feel secure in the face of an emergency. It\u2019s ok to start small, as anything is better than nothing\u2014you can put away a little now, and build upon it over time.<\/p>\n\n\n\n

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Figure out and calculate your expenses<\/strong><\/h3>\n\n\n\n

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Once you\u2019ve decided on how many months of expenses you want to cover, you need to calculate those expenses to arrive at an actual figure. Start by making a list of all<\/em> of your monthly expenses, from rent and bills to groceries and transportation. Don\u2019t forget to include debt repayments<\/a>, if you have them, as the whole point of an emergency fund is to avoid going down that slippery slope. In this case, it\u2019s better to overestimate than underestimate miscellaneous expenses (a little extra cushion is never a bad thing). Once you\u2019ve calculated all of your expenses, you can multiply that figure by the number of months decided upon to reach the amount you\u2019ll want to set aside in your emergency fund. <\/p>\n\n\n\n

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Figure\nout how much you can afford to save<\/strong><\/strong><\/h3>\n\n\n\n

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As\nyou\u2019re calculating your expenses, you can start do determine how much you can\nafford to save. Don\u2019t be deterred if it\u2019s not a lot\u2014it takes most people a good\namount of time to establish a full fund. Even an extra \u20ac20 per month is a\nstart\u2014the key is to just start with something. <\/p>\n\n\n\n

As you\u2019re looking over your expenses, you can try to get a grasp on some of your discretionary (i.e. non-essential) expenses and find a way to make some cuts. Start cooking at home more than going out, skip a hair appointment or two, make your own coffee versus going to expensive shops\u2014find little (or big) ways to be able to contribute more to your emergency fund over time. You don\u2019t need to go bare bones\u2014see what you can do without while still living comfortably.<\/p>\n\n\n\n

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Set up automatic deposits<\/strong><\/h3>\n\n\n\n

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This is key when you\u2019re trying to save. You can still manually contribute extra cash to your emergency fund (the more, the merrier), but having an automatic deposit of a baseline sum makes it very easy. It also holds you accountable to stick to it\u2014it\u2019s along the lines of the \u201cpay yourself first\u201d principle. If you don\u2019t have recurring contributions set up, it\u2019s all too easy to skip a payment or designate the allotted funds to something else you may think you need. If you have recurring deposits set up, you\u2019re forced to budget around it and consider it a regular expense alongside your bills and other must-pay expenses. You can always assess and adjust your contributions after a few months.<\/p>\n\n\n\n

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Where to set up an emergency fund<\/strong><\/h2>\n\n\n\n

So now you know how to get started, but the question remains as to where to set up your emergency fund. There are various options, but the best option is something low-risk and where you can access it without restrictions. That said, there are two important things to keep in mind when you\u2019re deciding on where to set up your emergency fund.<\/p>\n\n\n\n

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Set it up somewhere accessible<\/strong><\/h3>\n\n\n\n

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As emergencies generally hit without fair warning, it\u2019s crucial that you have quick and easy access to your fund. You don\u2019t want your fund to be somewhere with difficult and slow liquidation, as the whole point is to be able to access your money when an emergency unexpectedly strikes. <\/p>\n\n\n\n

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Set it up someplace completely separate from your regular bank account<\/strong><\/h3>\n\n\n\n

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As we have stressed previously, emergency funds should only <\/em>be used for emergencies. To avoid the temptation of dipping into your account for less-than-dire situations, set your\nemergency fund up somewhere separate from your primary bank. You may think of\njust opening another account within your primary bank, but it\u2019s too easy these\ndays to transfer money between accounts. A separate location will ensure that\nyour money is there when you need it and will help you to not categorize it as\njust another bank account you can access quick cash.<\/p>\n\n\n\n

With\nthat in mind, you now need to get into some feasible options. Savings accounts,\nmoney market accounts, and short-term certificates of deposit are all\naccessible options, whilst still earning you some interest. Online banks\ndefinitely are a great option if you want to steer clear of your brick and\nmortar primary bank. Do your homework regarding the different yields and\noptions, while also picking a friendly user interface that you\u2019re comfortable\nnavigating. <\/p>\n\n\n\n

For\nthat matter, any online option will generally offer higher yields than brick\nand mortar banks, as they don\u2019t have to contend with large overhead costs as\nthe price of doing business. There are an increasing number of fintech\ncompanies available for savers and investors; companies looking to fill\nmultiple gaps where big banks just don\u2019t cut it. It\u2019s a truth held self-evident\nthat you should err on the side of caution with the management of your\nemergency fund, but you also need to consider inflation\u2014if your money is just\nsitting stagnant, it can lose a good chunk of its buying power. This means\nthat\u2014as inflation percentages typically are higher than standard bank account\ninterest rates\u2014the price of things you purchase is increasing at a quicker rate\nthan your money is growing. Even if you don\u2019t want your emergency fund to be\nnear anything that may pose a risk, you should consider figuring out how to\nmake your money work for you once you\u2019ve established your fund. Fintech\ncompanies have given us so many more options, many that are simple, accessible,\nand fall on a spectrum from low to high risk (and lower to higher yield). <\/p>\n\n\n\n

It\u2019s important to remember that financial options and tips are never one size fits all\u2014every person and situation is unique. Even if you feel your finances fall short or are in too much of disarray to even consider saving or starting a separate fund, remember that even the smallest amount can make a difference. A couple hundred can get you out of a bind, and starting small is still starting\u2014starting is the key.<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

Earlier this month, we discussed emergency funds and went over 7 reasons why you should have one. We stressed the importance of only using an emergency fund for a real emergency\u2014perhaps a medical expense, a home or car repair, or suddenly finding yourself unemployed (with more reasons listed in the post). As the term \u201cemergency […]<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[119],"tags":[],"class_list":["post-22077","post","type-post","status-publish","format-standard","hentry","category-financial-well-being"],"acf":[],"featured_image":null,"categories_names":["Financial Well-being"],"category_name":"Financial Well-being","_links":{"self":[{"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/posts\/22077","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/comments?post=22077"}],"version-history":[{"count":0,"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/posts\/22077\/revisions"}],"wp:attachment":[{"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/media?parent=22077"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/categories?post=22077"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goandgrow.eu\/en\/wp-json\/wp\/v2\/tags?post=22077"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}