Saving an Emergency Fund
If you are like most of us, you barely make enough money to make ends meet. But what happens when your car breaks down or your Home needs an emergency repair? What would happen if you or your lost your job? Unexpected expenses can hit you at any time. It's vitally important that we are financially prepared for them when they come. Unless we are prepared for irregular financial needs, they can cripple us financially, leaving us stuck paying for them for years down the road. However, the idea of setting aside an emergency fund does not come easily. Here are some ideas for how to get started.Before you can begin to set aside unneeded funds, you need to know how much you actually need. Decide how much regular income you have, and how much of that income is dedicated to regular expenses. The leftover income in your budget is now yours to plan with. Decide on a certain amount of money for eating out and recreation, and an amount to deposit into your savings. The rest can then be used for day to day expenses.
It is also important to know how much to set aside for emergencies. To make a 3 month emergency savings fund, take the amount of money you need for regular expenses and multiply it by three (Or more!). This is the amount you should always aim to keep in your savings account. If you are just starting your emergency fund, then make aggressive payments into your savings account. Once you have that amount, then it's time to relax! Make smaller savings payments, and take yourself out to eat - You've earned it! If an unexpected expense comes up that requires you to dip into your emergency fund, make sure that you go back to making aggressive payments until your emergency fund is back up to where it should be.
When you are just starting your savings account, make sure you do your homework first. There are many types of savings accounts available. If you are just starting out, a simple savings account is a safe bet. You can usually get an account like this with the same bank you have a checking account with. These accounts provide low to moderate interest, but usually have no minimum deposit. Most savings accounts require a monthly deposit to avoid fees, but that is alright since we should be adding funds to this account every paycheck. If you are working with a larger amount of money, most banks offer high yield savings accounts. These accounts usually require a much higher minimum balance, and often charge fees for withdrawals. You should also check into Mutual funds and Money Market Accounts. Since this will be for an emergency fund, having the means to access your money quickly will be important. Make sure you shop around at different banks and financial institutions before you sign up for anything. If you ar eligible to join a local credit union, you will probably find accounts available with better rates, since most credit unions are non profit organizations, owned by the members of the credit union, rather than private owners.
If you are having trouble finding the money to add to your savings, here are some tips:
Deposit at least half of your tax refund into your savings account. If you are like me, Tax Refunds never quite become real money. They quickly turn into a new stereo or television and are gone as soon as they appear. However, the peace of mind knowing that you have an emergency fund in place in case anything unfortunate happens can give you far more in the long run than a new CD player in your car.
Take a small amount from every paycheck and put it right into savings. Even if you only remove $5 from each of your paychecks, it will help you get started. If your employer offers direct deposit, they can probably arrange to deposit $5 from every paycheck directly into your savings account. If the money never makes it into your checking account, it is far less likely to be spent on quick needs such as a hamburger on the way home from work or a Blockbuster rental on Friday night!
Consider a home equity loan. If you own a home, you can often take out a cash loan against the equity generated by your home. Make sure to use at least some of the money from the loan to re-fill your emergency fund. Depending on the interest rates of your savings account and your mortgage, you could possibly generate more interest from the money in your savings account that you spend on the equity loan.
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