If you have taken any student loans to fund your college education, you can expect to spend a major portion of your earnings trying to reduce your debt after you graduate. If you plan well, things should move along smoothly and you should be able to repay the loan within a few years of consistent repayments. That’s in theory of course.
Creating an Emergency Fund
The reality is, life is full of surprises and some of them will require you to have some funds readily available. That is what emergency funds are—to meet those unexpected expenses. Whether it’s because your car broke down or your laptop suddenly stopped working, a lot of things can go wrong for no reason. So how exactly are you supposed to create an emergency fund while still meeting your repayment obligations as well as your everyday expenses?
Setting Up a Budget
One of the best ways to do this is by setting up a monthly budget for yourself. From your earnings, first set aside the minimum payment that you must make every month. This is non-negotiable. The consequences of non-payment can roll over and result in you paying much more in the end. You can even end up defaulting, which will get you in a lot of financial trouble. That also includes affecting your credit score negatively and your ability to make large purchases or loans in the future.
After you’ve set aside what you need for your monthly loan payment, set aside what you need for your rent, food and other essentials. Remember to make the distinction between essentials and luxuries. This is absolutely crucial. Setting a budget for your weekly groceries is essential. Setting a budget for a lavish weekend brunch isn’t. In other words, separate what you need and what you want. You can spend money on things you want only if you have enough money after saving for your fund and paying all of your necessities first.
Every Little Bit Counts
When you are just starting out, you may find it difficult to keep a large amount towards your emergency fund. That’s okay. Start with a small amount every month while you focus on reducing your debt. Every little bit counts and this will grow to be a substantial amount with time. As long as you’re actively putting money away, that’s a good thing. You can put more in when you make more money or pay off your loans, but for now, do what you comfortably can.
Everybody will develop their own strategies for this purpose depending on their earnings, their lifestyle, and their other commitments. There are so many factors that go into how you save, from where you end up living to how much you make in a year. Whatever plan you implement, one thing is for sure, creating an emergency fund must be an integral part of your financial planning.
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