After overspending during a trip to Europe, I came home and my income took a severe hit. Then, my car’s transmission died. All of this happened right before the holidays kicked into full gear.
In total, I had to spend $8,000 from my emergency fund. Thankfully, I’d built it up to a generous $30,000, so I could pull from it without stressing too much.
I learned that a big emergency fund does more for me than cover emergencies. It allows me to live my life to the fullest.
personal finance coverage.
I spent years paying off credit card debt, so I built my emergency fund a little late in the game. However, once I was debt-free, I funneled as much money as I could each month into a high-yield savings account that would act as my emergency fund.
On average, I transferred $3,000 each month into my savings until I had a balance of $30,000. As a freelancer with an unstable income, and as someone living abroad and far from any relatives, having a generous emergency fund is even more important.
With $30,000 in my account, I had a year’s worth of basic living expenses saved rather than the typical recommendation of six months.
How I built my emergency fund from scratch
I think it’s important to rewind a little here and explain how I was able to funnel that much money into my savings in the first place. The key is simple, in theory, but harder in practice: increase your income, decrease your cost of living.
Because I’m self-employed, I have a degree of control over my income. I worked hard to learn skills that were in-demand and lucrative, and then to build a healthy base of clients who would pay me well for those skills.
Eventually, I was able to nearly double my salary from my old, full-time office job. Apart from learning the right skills, I’d say a big part of what helped me do this was never settling. I allowed myself to outgrow clients by raising my rates regularly and dropping clients who couldn’t keep up, only working for those who truly helped me achieve my income goals.
Then, there’s cost-cutting. My preferred method is to decrease my fixed and necessary costs, such as rent, transportation, and food, rather than flexible costs like shopping and going for drinks. While it’s important to keep both under control, I find that cutting out lattes just doesn’t give me the big financial boost I’m going for.
Instead, I live in a small place in a rural area where my rent is extremely affordable, and I drive an old used car that I paid for in cash. Food is also cheap where I live, and I try to meal prep as much as possible to avoid eating out too much.
Combined, these two methods have allowed me to save at least 50% of my income every month, making the building of my emergency fund a breeze.
That is, until I ran into some …read more
Source:: Business Insider