Why have an emergency savings fund?
An emergency savings fund is essentially money that you set aside to cover any unplanned expenses. This money allows you to keep going should you lose income or encounter a large expense. With it you can protect your assets while avoiding debt. Think of it as your personal finance insurance policy. Although easier said than done, especially if you have a lot of debt or live on a fixed income, the good news is that with a little effort and a few tips to find extra cash, it is possible.
Expect the best, prepare for the rest one-step at a time.
Check out this checklist to get started:
- Estimate your need, typically three to six months of living expenses or more if you can swing it.
- Set a goal you know you can reach.
- Calculate your monthly living expenses.
- Start slow and whenever you have a little extra money, put a little more aside until you have enough.
- Track your spending each week: it’s likely you will be able to find areas to trim, whether you take fewer coffee runs or pack your lunch, a little each week will add up fast.
- Know where your money goes - track to trim.
- Use our Home Budget & Savings Calculator
- Open an account that pays interest: Consider an interest-bearing, federally insured money market savings account or CD account.
- Set it and forget it - with regular automatic deposit transfers to your emergency fund so you don’t have to think about it.
- Save your tax-refund: channel at least some of it (if not all) into your emergency savings
- Pay down debt simultaneously
- Live a little, save a little: saving takes effort but remember to reward yourself along the way so you can stay balanced to meet your goals.
- Build your emergency over time with consistent contributions
- Once you reach your goal, redirect your cash to consider potential growth options, such as investments for retirement.
- Replenish the fund as soon as you can after you tap it for an emergency.
Financial wellness is about finding a healthy balance between living for today while preparing financially for tomorrow. Using these tips, you should be able to build an emergency fund to feel more prepared for when life throws you a curveball.