We’ve all heard the phrase, “Expect the unexpected.” This simple advice is particularly true when it comes to our finances. A fender bender can amount to outrageous mechanic bills. Storms can force a family to navigate the stress of paying for important house repairs. There is no way of knowing when a surprise expense is about to occur and being caught off guard can be stressful and inconvenient.
It’s unsettling to learn that less than forty percent of Americans have an emergency fund available. When issues such as job loss, natural disasters, or expected illness occur a fund that is specifically for unexpected problems can make a world of difference. If you are one of the sixty percent of Americans without an emergency fund, here are a few great tips on how to create one so that you’re not left scrambling when a problem arises.
Reevaluate Your Budget
Start small by looking at your existing household budget. Track spending for a specific amount of time, such as a month, or an individual pay period. There are typically areas of extra spending. It’s always easier to cut back on something and instead, send that money to a savings account. There are automatic savings programs that can deposit a part of earnings directly into an account before it is even received. The most important part of reevaluating the budget is to stay practical. The more reasonable an approach the more likely the savings goal will be met.
Now that you’ve set up an emergency fund the next step is to allow that money to grow without touching it. Consistency is key! Resist the urge to pull money from the account unless there is no other option and it’s of dire importance. An emergency fund should typically equate to four to six months of living expenses. This is not an easy feat. It takes true discipline and consistency in order to create an account that size. When making a purchase remember the goal and consider if the money would be better utilized by depositing it into the emergency fund. Think about the pain that can be avoided simply by being prepared when the unexpected takes place.
Choose the Right Account Type
It is imperative to choose the correct type of account for the emergency fund. Visit different banks and consider the different types of accounts while also comparing terms and rates. There are money markets, online savings accounts, and short-term CD’s just to name a few options. The best fit will be an account type that balances costs with easy access.