You have to realize that replenishing emergency funds is a task that you have to do again and again. We all know that life has a habit of throwing the unexpected at us. This is why we need to always be prepared with our emergency fund. It doesn’t matter how much money you have in your funds. Every time you have to use it, make sure that you put it back.
Identify an amount that you will maintain. Ideally, it should be 6 months worth of your monthly expenses. If you haven’t reached it and you already had to dip into your funds, you should just continue adding to it. In case you already reached your target emergency fund, you should be in a better position. Now all you have to do is to maintain that amount. Every time you have to use the money, you need to keep replacing it. Because if you don’t, you might run out.
Back in 2019, a survey was published to reveal that 63% of the respondents can’t even meet a $400 emergency expense. After everything that happened this 2020, you can bet that this figure will be worse.
So what can you do? You have to be constantly prepared. You have to keep replenishing emergency funds to make sure that you will always have something to use when the unexpected happens.
3-step plan to replenish your emergency fund
But what if you have a limited income? How can you replenish your emergency funds?
Here is a 3-step plan that will help you add more to your emergency fund despite your limited financial resources.
Create a new budget
To be specific, this should be a budget that will help you survive the emergency that you are in. Some would call it a crisis budget. This will come in handy every time you are in a very dire situation. The characteristics of this budget would one that is very frugal. You will only focus on what you need to survive. No extra spending – if you can help it.
It helps to have this budgeting strategy ready even if you are not in the middle of a crisis yet. This will help you adjust immediately. You still have to scrutinize it before you use it. But at least, it will be faster.
So how will you scrutinize this budget? Start by looking at the amount of money that you have. If you were laid off from work, check your savings and your assets. You want to know how much you are worth so you can check how long your resources will last. Any savings that you have, like vacation money, can be put towards replenishing emergency funds.
Identify your essential expenses
While you are looking at this new budget plan, it helps to identify or review the essential expenses in it. You want to make it as frugal as possible. If you don’t need it to survive, you don’t have to spend it.
But even if you need it to survive, you have to make the expense as low as possible. For instance, food is an essential expense. But ordering take-out is still more costly than cooking your meals from scratch. Or living in a big house when you only need a few bedrooms is expensive. You’re better off sharing it with someone or moving in a smaller one.
If you can keep yourself from overspending, all the extra money that you have can go towards replenishing emergency funds. The lower your spending gets, the more money you can add to this fund. The faster you can make it go back to the amount it had before.
Find another source of income
It’s also a good idea to find another source of income. If you have a limited one right now, you want to find a way to give it a boost.
The obvious reason is to increase your monthly cash flow. The higher the income, the faster replenishing emergency funds can happen. You will feel more secure when you know that you have enough funds in case something bad happens again.
But that’s not the only reason. If you have more than one source of income, it adds an extra layer of security that goes beyond that of our emergency fund. If you have at least 2 sources, you can lose one and still have money coming it. Although it won’t be the same as what you’re earning right now, it will still help keep you from feeling stressed. And if you spend your money frugally, you might be able to keep your hands off your emergency fund. That way, there will be no need to replenish it.
Why replenishing emergency funds is important
Why is there so much fuss about replenishing emergency funds? Because people need to be more financially secure. Here are the reasons why.
You don’t know when a crisis will strike
If you used your emergency fund recently, you want to add more to that so you have a lot of money in case something happens again. Because we all know that one crisis to happen after another.
According to one report, a lot of Americans have dipped their hand in their savings because of the events that happened in 2020. You can’t blame these people because we went through a devastating health emergency and then a financial one after the recession started. If you want to survive this or any other problem that might happen, you have to think about replenishing emergency funds.
You want to feel financially secure
The more emergency funds you have, the more secure you will feel. Even if you have a limited income or if you lost your job, having enough savings will get you through it without worrying about it too much. Instead of worrying about where you’ll get the money to buy food, you can just think about replacing your lost income. Or if you are sick, you don’t have to worry about where to get the money to pay for your medical treatments. You can focus on getting better because you know you have enough money.
This is the type of security that you will get if you have enough savings. So while you still have time, keep on replenishing emergency funds. You’ll be very glad that you have one when you need it the most.