An emergency fund is something everybody needs at every stage of life. It’s money set aside to help in case of emergencies. It can be useful if someone gets fired or laid off, or if there is an unexpected expense such as a house or car repair, or a medical situation. It can be difficult to save up for an emergency fund. Here are a few tips that will help you reach your goals and leave you with funds to pay your bills and enjoy life:
How Much Should I Save?
The first step in building an emergency fund involves setting a goal. Decide how much you want to save. Most people aim for 3-6 months’ worth of savings, but you can target one month to start. Build gradually from there.
Where Should I Keep My Money?
You must store your emergency fund in an account you can pull from at any time without penalties. Savings and money market accounts are ideal. Avoid CDs that will penalize you for early withdrawal. You should also stay away from high-risk investments like stocks. Stability is more important than building wealth when considering an emergency fund.
Tips for Building Your Fund
- Set up Direct Deposit – Direct deposit is an ideal way to build your emergency fund. If possible, work with your employer to create a system that deposits a portion of your paycheck into your savings. This system eliminates the possibility of spending money rather than saving it. Work out a deposit amount that won’t impact your lifestyle. You can set up a deposit of as little as $20 a week and it will grow in time.
- Cut Back on Expenses – Consider cutting back on expenses so it will be easier for you to set aside money every week or month. You may decide to eat at home instead of eating out. You may exercise at home instead of paying for a gym membership fee. Put the money you save into your emergency fund and watch it grow.
- Choose an Account That Pays You Back – Your fund will grow quicker if you invest in an account that pays you back. Choose an account with a small annual yield. Take note of requirements like minimum deposits and annual fees.
- Don’t Withdraw Money Unless It’s an Emergency – Don’t spend your savings unless you are faced with a true emergency such as a car or home repair, lost employment, or a large medical bill.
- Replenish the Account – Replenish the money you take out of your account. You never know when another emergency will strike. An emergency fund is something everyone should have. Focus on your goals. Build your savings through direct deposit and expense reduction. Choose an account that will help you grow your savings without deducting fees.
Get more financial tips and ways to save with our Money Matters articles. Good luck achieving your savings goals!
Disclaimer: Age Well CT provides content for educational purposes only. Please contact your financial professional before making financial decisions.