If you have no funds stashed away for a rainy day, your financial future may become quite stormy should something unfortunate happen.
Does this mean you should panic if your rainy day fund is currently nonexistent? Not necessarily, as we’ll discuss a way to start putting funds to it, even if you lack much disposable income to do so.
The Importance of an Emergency Fund
Why is an emergency fund so important? First, it gives you some financial help to lean on if something happens like an accident, the need for an expensive car or home repair, or another unexpected expense pops up.
Second, it keeps you from charging that expense to a credit card or taking out a loan, which can put you in debt for weeks, months, or even years to come.
How Much Money Should You Have in Your Emergency Fund?
The numbers vary according to your lifestyle, family size, and needs, but most say you should have three to six months of living expenses saved in your emergency fund.
While the amount is essential, so is how you keep it. You want that rainy day money to be accessible, but not so available you can dip into it and spend it on something else.
How to Create Your Emergency Fund Today
You want to get into the act of saving so you can start building that emergency fund now. As with many things, it may be a good idea to start small so that you can gain some momentum.
What’s an excellent way to start small? Start saving via the Penny Challenge.
When it comes to currency, you don’t get much smaller than a penny. Luckily, a penny is all you need to start this simple, yet effective challenge that will slowly add money to your emergency fund.
How to Start the Penny Challenge
You can begin the Penny Challenge today by putting one single penny in a piggy bank. To continue it tomorrow, add two pennies to the piggy bank. On the third day, add three. Continue this for 365 days, and you will have completed the Penny Challenge.
How much money can you add to your emergency fund after doing one year of the Penny Challenge? $667.95 is the total. And while that may not seem like much for doing a year’s worth of saving, remember how little you’re putting into the pot.
The highest deposit you’ll make is $3.65 on the final day of the challenge. So, for about the cost of two candy bars, you can get into the act of saving, build financial discipline, and have a nice sum at the end of one year that can be used for emergencies.
If the thought of making small cash deposits daily to a piggy bank sounds too taxing, make weekly deposits from your checking to savings account instead.
If you choose this weekly route, however, make sure you stick to it. By not making daily deposits, it’s easier to forget that you’re an active participant in the challenge.
Want to build your emergency fund faster? Do the Penny Challenge with multiple members of your family. It’s still highly doable, and you can double, triple, or even quadruple your emergency fund in the next 12 months.