Savings: creative ways to sustain an emergency fund

An emergency fund is your lifeline for coping with any sudden expenses or even short-term unemployment. It is a very essential part of your savings portfolio.

Here are a number of ideas for sustaining savings for your emergency fund:

Treat your emergency fund as self-insurance. An emergency fund is a way for coping with unexpected risks that can wreck your budget or events that force you to fall into a cycle of borrowing. Find a high-quality savings account with a decent return and build your emergency fund there.

Narrow your definition of an “emergency.” Every unplanned expense would seem like an emergency, so we usually tap into the fund more often than necessary. This will slow you down. Avoid the urge to tap into your funds by clearly defining what you will consider an emergency. Your funds will grow faster once you limit your expenses.

Over-budget for miscellaneous expenses. Allocate more money in your budget for unexpected expenses so you won't run out of cash and tap into your emergency fund. You’ll develop the ability to foresee nearly all non-emergency expenses ahead of time.

Live a pay raise behind.The next time you get a promotion, don’t be a victim to lifestyle inflation. Take the increase in monthly income and set up an automatic transfer to your emergency fund. Pay yourself first by using the increase to build up your emergency fund. As long as you can continue to live within your means, you can budget using your old income and watch your emergency fund grow.

Round up your budgeting categories. Simplify your budget by rounding up the figures. For example, if your mortgage is AUD 1,368 per month, budget the AUD 1,400. Not only will budgeting seem easier, but at the end of the month you’ll have some spare cash in your account which you can /pool/ into your emergency fund.

Focus. Make your emergency fund your number one priority. Channel all of your energy, pay the minimums on debt and put your other savings goals on hiatus.

Sell your junk. Have an emergency-fund garage sale. Create a list of everything you own, purge stuff, and sell half of the items on the list. Use the proceeds to buffer up your emergency fund.