How To Build An Emergency Fund

During the pandemic, about 40% of those who had emergency savings used them to cover expenses. This only shows that having an emergency fund is very important. Unexpected events happen all the time, and if you don't have an emergency fund, you might find yourself in a difficult situation.

There are many different ways to save for an emergency fund. In this post, we will explore some of the best strategies.

Key takeaways

• An emergency fund is a savings account that you use to cover unexpected expenses.
• Aim to have three to six months of living expenses saved in your emergency fund.
• Start by evaluating your monthly expenses and then saving accordingly. 
• CDs and staking are great options for saving.
• Savings and emergency funds are two different things.

Emergency fund vs savings fund

When it comes to saving money, there is a big difference between an emergency fund and a savings account, and it comes down to purpose. A savings account is for long-term needs, like retirement or a down payment on a house. An emergency fund is for short-term needs and should be easily accessible when you need it.

In other words, a savings account is for a long-term goal that you may not encounter for years, while an emergency fund is for unexpected expenses that could happen at any time.

How much money should I have in my emergency funds?

A good rule of thumb is to have three to six months of living expenses saved in your emergency fund. This may seem like a lot, but it's essential to have enough money set aside in case you experience a financial setback.

Start by evaluating your monthly expenses and then saving accordingly. For example, if your annual expenditure is €60,000, you should have at least three months worth of living expenses, which is €15,000. If you want to be extra safe, you can save six months' worth of living expenses, which would be €30,000.

Why do I need to have that much?

As mentioned above, we live in uncertain times, and it's important to have an emergency fund in case of unexpected expenses. For example, if you lose your job, you'll still need to pay for rent, food, and other essentials. Having a large emergency fund will help you weather any financial storms that come your way.

It's not easy to come up with a large sum of money, but it's important to start small and gradually increase your savings. For instance, that €15,000 will not cover your retirement–it’s far too little–but in an emergency, it will go a long way.

Building your emergency fund will force you to become more disciplined with your spending and find ways to save money each month. Sometimes, putting away just a little will make a big difference in your mindset and your ability to save.

Emergency funds calculator

Now that you know how to save for your emergency fund, it's time to start planning. Here's how to calculate how much you need to save each month from reaching your goal.

• Example Annual Expenditure: €60,000
• Three Months of Living Expenses: €15,000
• Six Months of Living Expenses: €30,000

You'll need to save €5,000 per month to reach your goal in three months. To achieve your goal in six months, you'll need to save €2,500 per month. And to reach your goal in one year, you'll need to save €1,250 per month.

How to save for your emergency fund?

Now that we've answered the question "how much should I have in my emergency fund?", it's time to explore some of the best ways to save for it. Start with skipping that daily Starbucks habit and saving €5 a day. Or, resist dining out a few times a month and put that money towards your emergency fund.

If you want to save more, forget about those 2-week vacations for now and use that money to bulk up your emergency fund. You could also get a side hustle or freelance gig to help you reach your savings goals faster.

The key is to find extra money in your budget that you can put toward your emergency fund. It should be consistent and at regular intervals. This is very important since it will help you know how much you have saved so far and give you a better idea of when to stop.

Where to put my money?

Once you've found extra money in your budget to put towards your emergency fund, it's time to decide what type of account to use. A savings account is a great option because it's easy to access your money when you need it.

Savings accounts

Savings accounts are easy to access, and most banks offer them. Just make sure you choose a bank that offers high-interest rates so you can earn more on your savings.

Money market accounts:

Money market accounts are similar to savings accounts, but they typically offer higher interest rates. They also have some restrictions, like a limited number of transactions per month. But if you're looking for a place to grow your emergency fund, a money market account could be a good option.

Certificates of deposit

Certificates of deposit (CDs) are another option for growing your emergency fund. They typically offer higher interest than savings accounts and money market accounts. But the downside is that you can't access your money until the CD matures, which could be anywhere from six months to five years.

Invest with the BOTS App

If you're looking for a more unconventional option, you could consider crypto trading with the BOTS app. The downside is that it's a more volatile investment, so there's a higher level of risk involved. But if you're comfortable with the risks, it could be a good way to grow your emergency fund. Having said that, you should also note that our bots try to minimize the risk via hedging, diversification, and other such techniques while also allowing you to have full control over your funds and keeping them transparent at all times.

Bottom line: why emergency funds are important

Emergency funds are important because they help you cover unexpected expenses. They can also help you avoid going into debt if you experience a financial setback. Your best strategy for building one will depend on your monthly expenses and how much you can afford to save each month. But once you've started saving, it's important to keep at it until you reach your goal.

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Disclaimer:

This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing.

Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.