Unexpected medical bills, unemployment, home repairs or even car repairs – it can all happen at a blink of an eye. The question is – Are you prepared to handle these unexpected expenses if they happen to you? If not, then it’s time for you to start an emergency fund.
An emergency fund is designed to cover a financial shortfall when an unexpected expense pops up. Your emergency fund can serve as a place to get the money you need when you find yourself short. Because it must be reliable, it needs to hold guaranteed investments. In other words, savings accounts are good for emergency funds, while stocks are bad.
How do I begin?
- Decide how much you’d like to save
$1,000, three to six month’s living expenses, a year’s wages – there are a lot of opinions out there about how much money you should put into an emergency fund, but the only opinion that matters is yours. Ask yourself how much you would need to have put away to feel secure, and make that the amount that you save in your emergency fund.
- Chart your monthly income and expenses
Figure out how much money you have coming in and how much you have going out on average per month. Add up all bills, loan payments, gas, groceries, etc. and subtract that from your monthly income. This will be helpful when trying to figure out how much you can put away each month without breaking the bank.
- Open an account
The best place for your emergency fund is in a liquid account (accounts where your cash is easily accessible). This might be a savings account at your credit union that provides some return on your deposit in a form which you can withdraw money at any time without paying any fees. You can also put your money into a CD or a Money Market account. Just double-check to see if there are fees to take withdraw early.
- Figure out how much you are able to save
If you’re like most people, building your emergency fund is going to take a lot of time. Don’t worry though, it’s okay! The important thing is that you get started today. Look through your finances, and determine how much you can afford to put towards your emergency fund each month. Even $10 a month will help, so don’t worry if that’s all you can afford to do.
- Set up automatic deposits
Make saving easy by scheduling automatic deposits to your emergency fund. Then, sit back and watch as your balance grows month-after-month.
- Stick to your plan
This can sometimes be the hardest part of saving for an emergency fund or any financial goal in general. Just remember, if your goals are realistic and attainable, sticking to the plan will be much easier.
Until Next Time,