What exactly is an emergency fund? It is a set aside bank account with money to cover unexpected emergencies. These emergencies can consist of anything from a major car repair, a large hospital bill, home appliance service or repair or worst UNEMPLOYMENT .
This is a fund that would be helpful for in case shit happens.Like clockwork it always does. You should always be prepared. Creating and funding your emergency fund so the unexpected doesn’t completely blind-side you would cause you a whole lot less grief.
How Much Should You Save: So now that you’ve figured it may be in your best interest to consider an emergency fund, how much do you actually save. In short, as much as you possible could. Realistically try to strive for up to half take home yearly salary. It really depends on your financial circumstances, but a good rule of thumb is to have enough to cover three to six months’ worth of living expenses. If you lose your job, for instance, you could use the money to pay for necessities while you find a new one, or the funds could supplement your unemployment benefits.
Why Do I Need An Emergency Fund:Emergency funds create a financial buffer that can keep you afloat in a time of need without having to rely on credit cards or take out high-interest loans. It can be especially important to have an emergency fund if you have debt, because it can help you avoid borrowing more.
Where do I put my emergency fund?
A high-yield savings account is a good place for your money. It is federally insured up to $250,000, so it’s safe. The money earns interest, and you can access your cash quickly when needed, whether through withdrawal or funds transfer.
A savings account with a high interest rate and easy access. Because an emergency can strike at any time, having quick access is crucial. But the account should be separate from a bank account you use daily, so you’re not tempted to dip into your reserves.
How do I build an emergency fund?
- Set a monthly savings goal. This will get you into the habit of saving regularly and will make the task less daunting. One way to do this is by automatically transferring funds to your savings account each time you get paid. A good rule of thumb is to always try to transfer the money to your saving account as soon you get paid. Out of sight out of mind and going towards a good cause. If you don’t remove it right away, you run the risk of spending it on something else you may not really need.
- Keep the change. When you get $1 and $5 bills after breaking a $20, drop some in a jar at home. When the jar fills up, move it into your savings account. If you don’t carry cash, you could try a mobile savings app that makes automatic transfers, with rules that are based on the transactions you make. There are many saving apps out there. Check out a few like Digit or Acorns.
3. Get supplemental income. If you have the time and willpower, get a second job or sell unused items from home to accumulate more money for your fund
4. Save your tax refund. You get a shot at this once a year at tax time — and only if you expect a refund. Saving it can be an easy way to boost to your emergency stash. When you file your taxes, consider having your refund deposited directly into your emergency account. Alternatively, you can adjust your W-4 tax form so that you have less money withheld. Then direct the extra cash into your emergency fund.
5. Assess and adjust contributions. Check in after a few months to see how much you’re saving, and adjust if you need to add more. This is especially important if you go through an expensive major life event such as marriage or a move to a new city, or have an emergency that causes you to dip into your existing fund.
Remember the whole point of building an emergency fund is to have it in times of an emergency. Don’t dip into it and use the money before it is actually time to – Use the money. Everyone needs to save for the unexpected. Having something in reserve can mean the difference between weathering a short-term financial storm or going deep into debt.