What is an emergency fund? The terms says it all, a fund for everything unexpected like Fido getting sick, your car breaking down, or a medical emergency. The last thing you want is to rely on your credit card or a loan; having a little extra cash for this type of situation can save you money.
How do you start an emergency fund?
Check your budget: Make a list of all of your regular monthly expenses (a budgeting worksheet created just for you, by me). After you total your expenses then subtract it from your monthly income. Decide how much you can afford to put aside. If you currently find it difficult to save money — the key is to start small (even $10 a month will help).
Set a goal: Most experts say a good emergency fund will cover 3-6 month’s living expenses. But ask yourself “how much do you need to save? What would make you feel financially comfortable?” Is it $1,000 or 3-6 month’s living expenses or maybe a year’s wage? Whatever you decide – choose the amount that will make you feel secure. Remember make your goal attainable.
Create an account:The best place would be your local credit union. At my credit union (FTWCCU) it only cost $5 to open a savings (share) account. And it earns a little bit of interest, too — that’s free money.
Automatic deposit: Make saving easier by scheduling automatic deposits to your emergency fund savings account. Now your savings account is growing while you go about your normal, busy schedule.
It’s important to have an emergency fund that you can rely on when you need it. Remember to keep it in an account that is conveniently accessible. So you can get to the money quickly in the event of an emergency.
The next time an unexpected emergency comes along you’ll be so glad you were able to use the money from your savings account instead of charging your credit card. Being financially responsible is worth it. You are worth it!