You should always expect the unexpected! You can be prepared for the unexpected by having an emergency fund set aside. An emergency fund is the best defense against a financial emergency. Many people doubt they can afford to start, build, and maintain an emergency fund. But the truth is, you can't afford not having one.
A financial emergency could be an auto or home repair, medical expense, job loss, death, or anything else requiring a significant amount of money on short notice. Unfortunately, these challenges force many people to deal with the situation by using credit cards or taking out a loan. This simply makes the condition even more challenging in the long-term. Remember these tips!
1Save Based On 3-6 Months Living Expense
The general rule is to keep between three and six months of living expenses in a readily accessible account. Of course, that's just a general rule. The proper amount for you will depend on your specific situation. No two circumstances are identical.
Consider if children are part of the equation. How much debt are you currently carrying? What types of insurance coverage do you have now? The answers to these questions will allow you to make an informed decision about the size of your emergency fund.
2Prepare For The Worst Times
Sudden loss of income is the most common reason for needing to dip into an emergency fund. If there is a job loss, bills still need to be paid. Finding significant employment can take at least a few months. Don't be caught without an income and money in savings!
It is always best to have a plan in place for the worst-case scenario. It's easier to handle the smaller emergencies, like buying new tires for the car. Situations will arise - it's simply part of life.
3Start With Small Savings
If you don't already have an established emergency fund or if saving money is difficult for you, starting small is fine. Even accumulating a single month of living expenses can take some time. Set small, manageable goals, and the odds of reaching them will be better. The simplest way to get started is by opening a savings account at your bank, and this should be an account separate from any other account you may currently have. Get into the habit of making consistent deposits; set a schedule, and stick with it.
Even just $10 or $20 a week can be a good place to start. Try to increase the amount you're saving each month slowly. Over time, you may want to move those funds into an account that can earn more interest. After attaining the minimum balance levels, money market accounts and certificates of deposit can be better solutions.
4Use The Fund For Emergencies Only
Have discipline and only use this money in times of financial emergency. A vacation or a new wardrobe is not an emergency! Avoid dipping into your emergency fund to pay for other large expenses that aren't true emergencies.
Having an emergency fund is a big part of maintaining financial stability. It protects you and your family from unforeseen emergencies. It's important that you get started today! Every little bit can make a difference.
Everyone faces financial challenges at times. If you're not ready when the time comes, you'll hate yourself for not having made the proper preparations. Be prepared for the inevitable challenges of life. Not only will it be easier to weather the storm, but you'll also sleep better: knowing you're ready.
Jackie Wing is an Alaska native who enjoys snowboarding more than is probably socially acceptable. She lives in Anchorage with her two dogs Reese and Peanut or as she likes to call them Thing 1 and Thing 2.