How to Reset Your Emergency Fund after an Emergency
You’ve scrimped and saved for months, finally built your emergency fund to where you want it to be, and then suddenly, your car dies. Or there is a flood in your home. Or you get let go from your job. You’re back at square one feeling discouraged and helpless now that you’ve had to drain all of the money that you so carefully saved. How do you get in savings mode again after your emergency funds are gone?
Feel Proud of Yourself for Having an Emergency Fund
No one likes to drain an account of funds, but you should feel proud of yourself that you had the funds there in the first place to use during your emergency. Some people use credit cards, a personal loan, or borrow from family and friends in times of need so by having an emergency fund on hand, you’re already ahead of the game because you’re indebted to no one. You have a fresh start now. Although it’s frustrating to start back at square one, you’ve done before and you can now do it again.
Review Your Budget
After your emergency fund has been depleted, sit down and take a look at your monthly spending. Create a new budget for yourself that eliminates unnecessary spending. Assess what is most important to your monthly expenses, and put the rest towards your emergency fund. You may have to be super creative. Although you may be tempted to replenish your funds right away, make sure that the amount of money you set aside for yourself a month is realistic. If you stretch yourself too thin, you may become discouraged. Slow and steady saving is the best bet. For more tips on creating a budget, click here.
Plan How Much You Should Save
Experts suggest that your emergency fund should be 3 to 6 months of salary, but the amount you save is very personal. It is ultimately up to you. You can save as much or as little as you would like. But as you just experienced, when and how much you will need to draw from your emergency fund is unpredictable. Taking a look at your financial goals for the next year and for the next five years, combined with your monthly budget, can tell you how much you will want to save.
Separate Your Emergency Funds
Your emergency funds should be in their own savings account. If mixed with your checking or regular savings account, you may be tempted to spend the money if you are in a pinch or if you want to make an impulsive purchase. Make sure that your emergency fund account builds interest but also make sure that the account doesn’t penalize you for a quick withdrawal of all of your funds. After all, your emergency funds should be able to be used at the drop of a hat. Find the best savings account for your emergency fund. Click here to see the options that AmeriChoice offers.
Pay Your Emergency Fund First
After reviewing your budget and deciding how much money you can afford to set aside for your emergency fund, you should pay yourself that money first, put it in your emergency fund account, and forget it about as if it were another bill. By doing this, you’ll always know that you’ll be committed to prioritizing your savings. You can even make the transfer to your savings account automatic on a certain day of the month.
Pick Up Another Source of Income
If you’re monthly budget is coming up a little short or if you would rather not cut any of your spending, try to seek additional sources of income. It may be the perfect time to build your side project or go back to doing something part-time that you love. Don’t look at it as a chore. Instead, see it as an opportunity to build your resume and expand your experience beyond your normal job.
Although using your emergency fund can be seen as a set back, remember that it is an opportunity for a new start. Be proud of yourself that you had the emergency fund in the first place and remember that you can always build it up again because you’ve done it once before.