Nearly a 25 percent of Americans choose setting up their emergency fund as their first objective when creating a savings plan. Studies have shown that low-income households with at the very least $500 saved were much better off financially than moderate income households with less in their emergency fund. However, most Americans still do not have enough savings to cover an unforeseen emergency.
What is an emergency savings fund?
If just starting out, your emergency savings fund should contain at a minimum $500. This is usually setup in a separate savings account not readily accessible. You can setup automatic withdraws to fund this account and save for a rainy day. You will be surprised how quickly the funds will add up in this account.
Ideally an emergency fund should contact 9-12 months worth of expenses. Some expenses to consider when establishing the right amount of emergency money are housing, bills, food, insurance, transportation and personal expenses. Sounds like a lot of money? Yes, it is, however it is very important to have sufficient savings for financial security.
Why should I save for emergencies?
Keeping an emergency funds account may be one of the most essential difference in between those who survive and those who sink in financial debt. It also provides you comfort, knowing that you can manage to pay unanticipated expenses. That’s since maintaining $500 to $1,000 of savings for emergency situations can enable you to quickly fulfill unanticipated monetary obstacles such as vehicle repairs or home emergencies.
Without an emergency savings we are forced to turn to high interest loans or use credit cards to manage these unforeseen situations we may face.
How can I build my emergency savings?
The easiest and also most reliable means to save is automatically. This is the preferred way many Americans save. Banks can help by setting up an automatic transfers between your checking and savings accounts. This way, funds are automatically moved from accounts on the same day as your direct deposit.
Where should I keep my emergency savings?
It’s normally preferred to keep these funds with a credit union or bank. This offers easier access to your money than accounts like U.S. Savings Bonds, CDs or Mutual Funds. Though these are beneficial for retirement saving, they are not optimal for an emergency fund. It’s certainly recommended that having your emergency fund in a separate account than your primary checking. The point is to make it more difficult to access this money on a day to day basis.
How to start an emergency fund?
Start by establishing a plan to increase your savings and setting up a budget. Find out how much you will need to survive if you or your partner lost their job. Then, you must decide how much you can afford to save each month. Ideally we should save at least 20% of our net pay for savings and an emergency fund, however adjust this based on your budget.
Saving is difficult and a necessity. Unfortunately too many of us do not have enough saved in the event of unforeseen circumstances. The easiest way is to jump right in and setup an auto transfer of any amount into your savings. No amount is too small, you just need to start somewhere.