How to Start Your Emergency Fund
An emergency fund can be your saving grace in the event of emergency home or auto expenses, unexpected medical emergencies, sudden income loss, unforeseen events like a pandemic, or other unexpected curveballs life may throw at you. A savings account that you can draw on for emergencies can provide stability and peace of mind.
How Much You Should Have Saved
The recommended amount you should have saved in your emergency fund can vary depending on where you look. Some experts recommend that you have 3-6 months of living expenses saved up, others recommend a specific dollar amount. It’s important to keep in mind that no two financial situations are the same. As long as you are saving what you can and have a plan to reach your savings goal, you’re on track. A third of American households have less than $1,000 saved. Strive for an emergency buffer that you feel comfortable and confident with so you will be prepared when emergency strikes.
Have a Designated Savings Fund
The money you are saving for your emergency fund should be kept in a different account from your other checking or savings accounts. Keeping these savings separate from the accounts you use for paying bills or other purchases will help you avoid dipping into the funds for non-emergencies. You never know when you might need to access the funds, so putting it in a certificate account may not be your best option, unless the account allows penalty-free withdrawals. Putting your emergency savings into an interest-bearing savings account will help you save even more.
Automate Your Transfers
Setting up automatic transfers to your emergency fund savings account makes it one less thing to remember, and you won’t have to worry about spending that money on other expenses first. Treat your transfers to savings like any other recurring bill and create an automatic transfer to deposit funds directly into your emergency fund. You can choose to set the transfer monthly or each time you receive your paycheck.
Evaluate Your Budget
To get your emergency fund started and free up enough money for automatic transfers to your emergency savings account, you may have to cut spending elsewhere. Cancel any subscription services you aren’t actively using or any you can live without temporarily, bring your lunch to work and eat out less, or see if you can cut costs on your phone, cable, or internet plans. Or, you can make bigger changes like refinancing your home or car to free up funds. Move any additional money into your emergency savings fund.
Save Any Extra Money
You can kick-start your emergency fund or give it an extra boost with any windfalls you receive. Invest all or a portion of your tax return, stimulus payments, work bonuses, money made from selling items, birthday or holiday money, or other large sums of money directly into your emergency savings account. Since this money isn’t part of your normal income or spending, it’s easier to put these funds into savings without missing them. If you don’t see it in your checking account, you won’t be tempted to spend it.
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