Having an emergency cash fund is essential to handle those unexpected expenses that crop up in daily life-from simple car repairs to a devastating job loss. No matter how disciplined you are at balancing your budget, you need extra cash on hand to give you peace of mind when these unforeseen circumstances arise. Read this article for tips on how to start your emergency fund today.
How Much You Need
If you’ve had a stable job for at least a few years, you probably have a lower risk of losing your job and being left without your main source of income. However, you should still plan to save the equivalent of three months of earnings in order to cover your expenses. There are so many things that may need your immediate attention — you might need to install a mold resistant drywall in your house as a mold remediation process after a flood, or you might need to have your car serviced. These are essentially those expenditures that have but put out for a long time, and require attention. You’d want to set aside some savings for such expenses because delaying them for too long can only result in higher bills and bigger problems.
As it appears, saving money for emergencies is a wise decision. The objective behind this effort is to be prepared in case you need to deal with circumstances and situations that come with big expenses. Suppose you live in a place where there are frequent storms and heavy rain; the risk of your roof sustaining damage or caving in is real, especially if trees fall on it. In fact, you might even be required to call up a Roofing contractor in Troy, MI to put up a new and better roof, if that’s where you’re at. Putting aside funds for such an emergency can thus prove to be a blessing.
Now, if you have kids, then push that income threshold to about six months to give yourself plenty of time to get back on your feet. Likewise, those starting out at new jobs should aim to save about six months’ worth of their earnings as well.
How To Finance Your Emergency Fund
If you’re barely managing to make ends meet, you may be wondering where you can get the extra cash to stow away in an emergency fund. Here are a few quick and easy tips to get you started:
- Shop around to see if you can get a better price on your insurances and your mobile phone contract, or a more competitive rate on your energy tariff and your mortgage.
- Cut costs around the house by reducing your energy usage, taking advantage of savings and bulk discounts at the supermarket, and reducing your entertainment budget.
- Get rid of those unwanted electronics lying around your house. Sell BlackBerry Curve 8520, old DVDs, CDs, and video games online for some quick pocket money.
- Ride your bike to work, car share, or take local transportation to cut down on transportation costs.
- Transfer all the change you’ve accumulated at the end of each day to a savings jar. Deposit the money in your emergency fund once a month.
How To Open an Emergency Fund
Beginning savers should put their emergency funds in a bank savings account, where there will be no risk of losing money in the event of an economic downturn. The other advantage of bank savings accounts is that most allow you to make an unlimited amount of deposits and withdrawals without incurring penalties. Shop around for a bank that offers the highest interest rates on savings accounts to help beef up your funds. If you’re worried about spending your emergency fund on unnecessary expenses, keep it at a different bank than your regular checking account, and ask your bank to remove access to the account from your debit card. Once you’ve got enough money to cover your expenses for a few months, you can look into putting additional money you save into a cash ISA or a fixed-rate bond to collect higher interest rates.