The concept of having an emergency fund is not new, although it’s probably something we’ve all thought about more and more these days. But instead of just thinking about it, we’re here to help you actually do it! Read on for our expert tips on how to start your emergency fund, how much to save and when to tap into it.
How Much Money Should I Have in my Emergency Fund?
As a general rule, most financial experts say to have 3-6 months of living expenses saved. And while that’s a great goal to aim for, we know that saving that much money isn’t always realistic. So, start small and work your way up with little goals. First, try to save the equivalent of 2 weeks pay. This is a good foundation that could help you pay for an unexpected car repair or medical bill. After saving 2 weeks of pay, aim to save a month’s income. It might take some time, but that’s ok! With careful budgeting you’ll get there.
Savings Account vs Checking Account
If you haven’t already, we recommend setting up a savings account for your emergency fund rather than keeping it all in your checking account. Why? Savings accounts earn better interest. While still easy to access, you’ll actually earn money off your money. Also, the temptation to spend money from your savings account is lower. If the money is in your checking, it can be really easy to withdraw an extra 20 when pulling money out of the ATM. In a dedicated Savings Account, it has to be a deliberate and separate action.
Pay Yourself First
With a steady flow of bills coming in, it’s easy to put saving money on the backburner. But even if you’re working to pay down student loan debt or credit card debt, saving for an emergency is imperative. Try to make your savings goal the very first thing you allocate from your paycheck. Even if it’s just $50, any amount adds up over time! Think of it this fund as insurance – you won’t have to put even more on your credit card, where interest and fees really add up.
When to Use Your Emergency Fund
Use this money to help pay for whatever counts as an emergency – a car repair, medical bill, new glasses for your daughter, an air conditioner or furnace repair – you get the idea. But once you use the money, you have to make a conscious effort to replenish the account to be ready for the next unexpected expense. Don’t get frustrated though, that’s exactly what that savings is there for!
At World Finance, we understand that emergencies and unexpected expenses can hit all at once, before you’ve saved up enough to cover those costs. That’s where a personal installment loan could come in handy. While it shouldn’t replace your emergency fund, if you’re in need of financial help, a loan from World Finance can help supplement the money you have been able to save and help build your credit score.
Expand your Savings Knowledge
Looking for more savings and budgeting education? Check out MoneySKILL. We teamed up with the AFSA Education Foundation to help us create these free online finance courses. Also, check out our other blogs!