If you’re wondering how to build an emergency fund, you’re in the right place. An emergency fund is money set aside for unexpected costs, like car repairs, home fixes, or job interruptions. While you build that fund, it’s helpful to know about financial backup options like a title loan, payday loans, or an installment loan for urgent situations.
Why You Need an Emergency Fund
Having an emergency fund gives you peace of mind and prevents you from relying on high-interest debt. When you don’t have savings, you might be forced into taking a loan or a credit card with costly terms. According to financial research, putting aside even a small amount can make a big difference.
5 Steps to Building an Emergency Fund
1. Calculate Your Expenses
As we said, an emergency fund should cover you for at least 3 months of expenses. However, your fund can’t do that if you don’t know what your expenses are in the first place.
You need to dedicate some time to figuring out what you spend every month on food, utilities, rent, etc., remembering to account for big annual payments like car or home insurance. Once you’ve got an idea of what you spend, you can start building an emergency fund to match.
2. Start Saving Money Now
It can be hard to start saving if you’re living on a budget, but you should still make efforts to do so. There are many apps out there that will help you do this, rounding up purchase fees and setting aside the difference, or putting a chunk of your income into savings every month.
Use these apps to ensure you’re saving at least something each month if possible. Remember, setting aside a little bit of money is better than nothing at all!
3. Separate Your Money Into Different Accounts
Your emergency fund shouldn’t be in your main bank account, or you’ll find yourself tempted to start spending it. The cash you set aside specifically for emergencies is different from the cash you use even on essential expenses like bills or your rent.
Instead of having all your money go into the same account, separate your emergency money into its account so that you don’t see it and don’t think of using it when you’re out. Avoid taking the card with you if you struggle with temptation.
4. Choose An Interest-Based Account
Getting something back on your savings, even if it’s only a small amount, can be a good incentive for you to save more. If you feel like your savings are earning you more money, you may find you’re more inclined to keep adding to them. This means you need to pick an account that offers some interest on your money if you can and avoid fee-based accounts that will eat into your savings each month.
5. Keep Records
Being strict about good record-keeping can make you more accountable, ensuring you save money whenever you have an opportunity. Log your income and expenses either online or on a piece of paper.
If you find you have money left at the end of the month, you can increase your saving amount for your emergency fund. Try to be aggressive in saving, at least until you’ve got at least three to six months’ worth of expenses set aside.
When Your Fund Isn’t Enough: Loan Options
While the above steps will help you build an emergency fund from scratch, what should you do if you happen to have an emergency right now that needs your immediate attention? Come see us at Texas Car Title and Payday Loan Services, Inc. for one of our loans.
Even with the best planning, your emergency fund may not cover every urgent cost. Here’s how loans fit in:
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Title Loan: You use your vehicle’s title as collateral to borrow. This can be a bigger amount and may help if your emergency fund is depleted. Learn more about title loans.
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Payday Loans: Short-term loans due on your next pay date. Good for small urgent needs, but should be used carefully. Learn more about payday loans.
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Installment Loan: A loan you repay over multiple payments, ideal when you need a bit more time than a payday loan allows. Learn more about installment loans.
These loan types can be helpful, but your emergency fund should still be your first line of defense.
Start Building Your Emergency Fund Today
Having an emergency fund can help you with various situations, so you need to do whatever you can – and use whatever financial options available – to build your fund. This is still the case even though emergencies can be very unpredictable.
So if you are building your fund, follow the above steps for help! If you do have an emergency and need help, fill out the online application on the Texas Car Title and Payday Loan Services, Inc. website right now to get one of our loans!
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.
