Given debt is your biggest enemy, starting an Emergency Fund may just help you overcome some small problems without having to charge it on your credit card. Because as soon as you've started relying on debt it can quickly spiral out of control.
This is a series of Money Hacks to help to make extra money by creating habits in your life. Previously I'd touched on a few of these Money Hacks but wanted to go more in-depth and didn't want to produce a 10,000-word monster article for you to read.
This series will only be completed when I run out of ideas to share so make sure you bookmark this site.
Start an Emergency Fund
What do you do when you have some broken pipes, or the washing machine suddenly stops working? Most of us just simply get them fixed, but if you're living paycheck to paycheck then the chance are you won't have the money for the repairs and will charge it to your card instead.
The problem with this is, credit card interest can be around 20% pa and it's compounding too which means you'll be paying interest on interest. Ouch!
And once you're in the credit card trap, things might start to spiral as you debt increases.
But it doesn't have to be this way.
How to Start an Emergency Fund
Most emergencies can be covered by around $1000, so this should be your target amount. Next, you'll need to decide how quickly you want to get there factoring in what you can afford to put aside each week.
But the quicker you reach this goal the more in control of your finances you'll feel.
I'd suggest $100 per week if you can manage it, which would also mean it'll take 3 months to reach your goal. And sure it might mean making a few sacrifices in the short term, like cutting back on eating and drinking out but it's a sacrifice that'll you'll appreciate in years to come.
Starting an emergency fund is short term pain with a long term gain.
Then once, you've reached your goal, you must be strong and only use that money for emergencies.
It's not there for buying the latest iPhone model when it's released.
But it could be used if you suddenly lost your job and had bills to pay or as mentioned earlier a washing machine broke or the plumbing needs an emergency repair.
Avoid going into debt whenever you can.
And remember the only good debt is the debt that is making you money.
Do you have an Emergency Fund? If so, what amount do you think people need to put aside to feel financially in control?
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