An emergency savings fund is when you set aside money for unexpected expenses. This money is used for emergencies only. Having an emergency fund gives you the money you need to pay for essentials when you need it most. Best of all, you’ll have more peace of mind.
It’s best to fund your emergency savings with at least six months of your monthly expenses. This would include items like rent, gas, groceries, insurance and utilities. How much money do you need to put into your emergency fund? You need to calculate your average monthly costs for everything you need. Then multiply that amount by six to determine your initial emergency savings goal.
With an emergency savings account, you’ll have more financial security should something unexpected happen. For example, say your refrigerator stops working and you need to pay for a costly repair or buy a new one. While this isn’t something you expected to have to pay for, it’s easier to deal with when you have the money available. You won’t have to go into debt to cover the expense, you simply get the money from your emergency savings.
Always remember to fund your emergency savings back up when you make a withdrawal. Given the current economic climate, it may be better to put a year’s worth of your expenses into your emergency fund (if possible). This would really help should you have a job loss or something big come up.
Tips for Starting Your Emergency Fund
- Use Your Stimulus Check – If you received a stimulus check and you don’t have to use the money to pay for necessities, then consider saving it.
- Review Your Spending Habits & Cut Expenses – Where is your money going? Perhaps you can cut down on your monthly expenses and use the additional savings to help fund your emergency savings.
- Put Your Savings on Automatic – Designate a portion of your earnings every paycheck to help fund your emergency savings account. You can talk with your financial institution about how to set this up automatically.
- Use Your Tax Refund – If you get money back on your taxes, use a portion of your refund for your emergency savings.
- Sell Things You Don’t Need or Want – Spring is just around the corner. It could be the perfect time to get rid of stuff you don’t need or want. Not only will have more space, but you’ll have more money to sock away in savings. How to Sell Your Stuff for What It’s Worth
Bonus: When choosing your savings account, beware of maintenance fees. Shop around and make sure you understand how the account works (minimum balance requirement, transaction limits). That way you can avoid any unexpected charges.
Happy Saving!
Pixabay image by luxstorm
