Imagine one day an unexpected large expense arises. What do you do with no finances set aside for this? Sounds stressful, right?

In moments like this, individuals often question why they didn’t listen to the advice from others about saving for a rainy day, which is also known as an emergency fund. If you aren’t used to having an emergency fund, this can be difficult to adapt to. Seeing a portion of your income set aside for emergencies can be hard, at first. However, when something does happen and you’re prepared for it, you will be happy that you took these precautionary steps.

Start small

Especially for those who aren’t used to having an emergency fund, make sure you’re only contributing what you can afford. For this step, it’s important that you go through your finances to see how much you can afford daily, weekly, or monthly to put towards your emergency fund. As long as you start the process, you’re doing what you can to stay prepared with the intent to grow this over time, and increase the amount you set aside when financially able to.

Cut back on spending

It’s amazing how much money can be spent when you’re not keeping track of it. Once you make a commitment to yourself to maintain an emergency fund, cutting back on your spending should become easier, knowing that those funds are being redirected for something that might be a higher priority in the future. Budgeting is a great way to cut back on unnecessary purchases. When looking into an emergency fund, seeing where you can afford to cut back costs can be a great strategy.

Create a separate account

Sometimes seeing money in the account that you use daily can make it easy to want to spend. If possible, creating a boundary by opening a separate account designated for your emergency fund can be a great way to store this money and not want to spend it constantly! A tax-free savings account (TFSA) is a great option for this. However, it’s always important to consult your banker or financial planner before moving forward with this step.

Stabilized income

As students, we know that a full-time salary isn’t realistic during the semesters. However, if you shift your working hours to part-time and can still afford to contribute to your savings account without it dipping into your expense money, you should continue to put some aside. Without having some form of income, it can be extremely difficult if not impossible to put aside money for an emergency fund. If your school schedule allows for it, picking up a part-time job can help with this.

Monitor your emergency fund savings

Once you start your emergency fund, make sure to keep checking on it to see your progress and analyze whether you could be adding more to it or less to it. This can act as a great motivation to keep growing the account and keep your financial goals of an emergency fund in order.

Savings versus emergency fund

It’s important to differentiate your savings account from your emergency fund. Knowing there is a difference between the money you allocate for savings and the money you allocate for an emergency fund is crucial. Some make the mistake of combining the two, which doesn’t always work out for the best. Make sure when looking at your finances that you have a savings account for savings and an emergency fund for emergencies.

Now that you know what it entails to have an emergency fund, would you do it? Does it help knowing that you could potentially prepare for unexpected financial expenses? Students who educate themselves by reading articles and implementing them in their own habits will be set-up for successful financial planning.