Make This Year The Year Of The Emergency Fund

Make This Year The Year Of The Emergency Fund

Google why it is necessary to have an emergency fund and you will get 6.6 billions results. That may not surprise you as we are almost two years into a pandemic. While the traditional ideal cited by financial experts is to have three to six months’ worth of expenses in an emergency fund, the lessons of the pandemic have some experts calling for a 12-month cushion. But according to a Bankrate July 2021 survey, 51 percent of Americans have fewer than three months’ worth of expenses in their emergency fund, with 25 percent of that number having no emergency fund at all. 

Review your budget

What is the minimum that is needed to cover your expenses during an emergency? That is the top priority. Do not include “nice-to-haves” in this figure to start. Once you have saved for all the essentials, you then can start deciding if you want to keep adding to the account or start a higher-yield account. 

Set your guidelines

Not every expense is an emergency. For example, if you can manage an unexpected car repair without touching those funds, then don’t. You’ll have that much more available when a true emergency happens. 

Separate your savings 

Don’t mix your emergency savings with your personal checking or savings account- open a separate account. To help reinforce its purpose, name the account with what your goal is. Emergency Fund might not be a catchy name, however it gets the point across. 

Make it automatic 

You won’t miss what you don’t see. Most employers provide direct deposit of paychecks. If they don’t, most credit unions and banks have ways to move money over automatically. The most important thing is to set up an automatic deposit. 

Start out small

Don’t stress your day-to-day cash. Whether it is $10 or $100, commit to having a set amount every week. The amount isn’t as important at this stage as focusing on developing the savings habit. When it becomes a habit, increase the amount or the frequency as you can afford it. Even an extra $2-3 per week adds up in the long run. 

Keep goals manageable 

Don’t stress about saving three months’ expenses right now. Start with a goal that is achievable, once you hit your first goal increase your second goal a little bit. There’s something very motivating about seeing an increasing balance in your account.

 

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