Building an emergency fund is a crucial part of financial planning. With the help of budgeting apps, it has become easier to save money and build an emergency fund. This article will discuss the features of an emergency fund and the general steps to create an emergency fund using budgeting apps.
What is an emergency fund?
An emergency fund is a reserve of money that you set aside to cover unexpected expenses or loss of income. It acts as a financial safety net and can help avoid debt or financial hardship in an emergency. The following characteristics describe an emergency fund:
- Liquid: An emergency fund should be readily available and liquid so you can get cash quickly if needed. This is why the majority of money experts advise placing your emergency fund in a money market or high-yield savings account.
- Adequate: Your unique situation will determine the amount of money you need in your emergency fund. Nevertheless, the majority of experts advise keeping three to six months of living expenses in reserve as an emergency fund.
- Separate: Keeping your emergency fund separate from other savings or checking accounts is crucial. This will prevent you from unintentionally using your emergency funds.
- Replenished regularly: If you spend your emergency fund, it is essential to replenish it quickly. To make sure your emergency fund is ready for the next unexpected expense, set a goal to replenish it.
Always manage your own money.
You should surround yourself with a team of people smarter than you, but you make the decisions.
— Dave Ramsey (@DaveRamsey) April 27, 2023
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Steps to Create an Emergency Fund Using Budgeting Apps
Here are some steps to create an emergency fund using budgeting apps:
- Set a savings goal: Find out how much you need to set aside for an emergency fund. Save at least three to six months of living expenses, experts say.
- Track your spending: Use a budgeting tool to keep tabs on your spending and find places where you can save money. This will save you more money for your emergency fund.
- Automate your savings: Set up automatic transfers from your checking account to your emergency funds savings account using the app to automate your savings. This will require you to prioritize saving for emergencies and ensure that you regularly add money to your emergency fund.
- Use the app’s savings features: Some budgeting apps have built-in savings features that can help you save money faster. For example, some apps round up your purchases to the nearest dollar and transfer the spare change to your emergency fund.
- Review and adjust your budget: Regularly review your budget and make any necessary adjustments. If you receive a raise or bonus, consider increasing your automatic savings contributions to your emergency fund.
Budgeting apps that can help build an emergency fund
Here are some sample budgeting apps that can help you build an emergency fund:
mint
With the help of the free budgeting tool mint, you can keep an eye on your expenses, make a budget and set savings goals. You can track progress towards your savings goals and set up automatic transfers from your checking account to your savings account. Additionally, Mint provides reminders when budgets are exceeded or an invoice is due, which can save you money by avoiding unexpected expenses.
5. Mint
Personal finance management app to track expenses, create budgets, and manage bills.https://t.co/Fkmst2H13F
— Kunjal Kanabar (@kunjalkanabar) May 8, 2023
YNAB (you need a budget)
YNAB is a paid budgeting app that helps create a budget and track expenses. It offers an “Age of Money” feature that predicts how long funds will last. The app encourages allocating every dollar to a job, such as allocating money for an emergency fund. Savings goals for the emergency fund can be set and tracked.
PocketGuard
PocketGuard is a free budgeting tool that allows users to track spending and create savings goals. Users have the ability to set up automatic transfers to savings accounts and build a budget. The app provides alerts for hitting the budget cap and approaching invoice due dates. The “In My Pocket” feature shows available money to put into the emergency fund.
Related: 9 Essential Financial Terms You Need to Know
Every dollar
The free budgeting tool Every dollar was developed by Dave Ramsey, a personal finance expert. Its feature called “Baby Steps” guides users through the process of creating an emergency fund in addition to allowing users to set and track budgets. EveryDollar also offers information on spending habits and savings opportunities to increase the emergency fund.
Personal capital
Personal capital is a free app that can help track expenses, create a budget, and set savings goals. It also offers investment planning and retirement savings tools. With Personal Capital, users can see a breakdown of their net worth and set up automatic savings transfers to an emergency fund.
