Are you on a budget and want to know how to make a cash cushion with your limited budget? Is cash cushion the same as an emergency fund? Find out the answers by reading this article.
Financial emergencies can take all your hard-earned money, and you might need funding to cover your expenses. Payday loan online lenders offers quick and easy funding for your financial crises.
We have compiled ways to help you build a cash cushion for rainy days, even with a tight budget.
Is Cash Cushion the Same as an Emergency Fund?
Both cash cushion and emergency funds are extra money set aside to help you during uncertain financial situations. However, they have their uses, and if you have a better budget, it is wise to have them both.
A cash cushion is a small balance maintained in your checking account to avoid overdrafts and insufficient fund penalties. It will help you eliminate the use of credit cards for unforeseen expenses. On the other hand, an emergency fund is a significant balance meant to sustain your expenses for months (ideally six months) in case of important events such as a medical emergency or job loss.
Ways to Make Cash Cushion on a Limited Budget
To help you create a cash cushion for planned expenses and guide you toward financial stability, you can follow the following steps:
- Track and control your spending. By tracking your spending, you can identify where your hard-earned money is going every month. You can look for ways to reduce your spending on discretionary lifestyle expenses such as pleasure shopping, dining out, expensive lattes, unnecessary travel, etc.
- Consider your monthly bills and fees. This will determine how much your cash cushion will be.
- Start small. If you have a tight budget, it’s okay to start small. Instead of spending a $3 latte two to three times a week, why don’t you set aside the money and put it on your savings instead? You can also set aside as little as $10 monthly to get the habit of saving. Once you start saving, you’ll be surprised how much those $10 can quickly accumulate and add up.
- Set aside bonuses and tax refunds. If you are working and have a tax refund or a cash bonus aside from your monthly earning, put it on your cash cushion instead of spending it.
- Create additional income. If you can find a part-time job or gig aside from your regular job, send the extra earning straight to your cushion.
- Set a goal to pay bills altogether. This may sound impossible, especially if you are on a budget. However, having a goal will give you the determination to spend less and save more. You can pay your bills at once when your cash cushion is larger than your monthly bills. Be careful not to spend your predetermined cushion.
Conclusion
We are usually too acquainted with instant gratification from spending on our wants. However, building an emergency fund and cash cushion will save you from unforeseen financial situations. So before you spend your hard-earned money, set aside your savings first.
