Tips for Building an Emergency Fund
You’ve invested in your home for a reason – you want something stable. Saving for emergencies is a great way to reduce surprises and stay financially at ease.
Emergencies by nature happen when we least expect them, and often at an inconvenient time. From a minor emergency like a car or home repair, to more serious emergencies like a medical issue or unemployment, handling the emergency becomes easier when you’re prepared financially. If going into debt — or further into debt — is the only way you can handle one of life’s curveballs, then it’s time to find a solution before one small emergency creates further problems down the road. There’s nothing worse than adding a financial burden to an already difficult situation.
Fortunately, it is possible to help your future self and reduce the impact a potential emergency can have by creating an emergency fund. This means saving money that you will only use toward that “rainy day,” when you really need it — not for pricey concert tickets or a vacation splurge. “Having an emergency fund provides a sense of ease when making financial decisions and budgeting,” said Director of Customer Experience, Jason Langston. “With discipline and planning, it’s a security that can help make life’s obstacles more manageable for families when unexpected expenses occur.”
Here are a few tips for building an emergency fund.
Decide how much to save.
How much money do you need to set aside for your emergency fund? Many financial experts recommend saving about three to six months’ worth of total expenses. In other words, money enough to pay all the bills for a few months to half a year, in case you are unable to work or have a sudden, large expense. That may seem like a lot of money, but it’s possible to achieve this savings goal if you save a little at a time.
Consider depositing your emergency funds in a separate, easily accessible — but not too accessible — account. Make sure it is not an account that you can easily dip into for daily expenses. Creating a budget and finding areas you can save are essential to determining how much money can be tucked away each month. Then, set a goal that is not out of reach for you, and conquer it! For example, try to have $500 saved in your emergency fund in one year; that comes out to only about $42 a month — or about a buck fifty a day. That seems entirely doable! Skipping a coffee shop latte every other day should do the trick.
Conquer one goal at a time.
Celebrate when you reach the goal, but not by spending. Make a special at-home dinner with your family and talk about the good feeling you have knowing that you’ll be able to handle a minor emergency, thanks to finances. Then set your next goal right away. Over time, your $500 will become $1,000, then $2,000. Soon, your emergency fund will be sufficiently filled. You’ll have the peace of mind knowing that you’ll be financially prepared if the unexpected comes your way.
Most of us don’t like to think about emergencies because we don’t want to believe that they’ll happen. But, if you have the discipline to save for those unexpected surprises, your future self will be thanking you for that emergency fund on that “rainy day.”
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