Unexpected expenses can happen to anyone. You could lose your job, have sudden medical bills, or a natural disaster could strike. You may think it won’t happen to you, but if it does, an emergency fund makes all the difference.
That’s why it should be a part of everyone’s budget. These tips will help you get started:
Save 3 Months of Average Income
Unexpected expenses can affect your month-to-month budget if you don’t have an emergency fund. To keep the impact low and your level of comfort high, try to save at least three months of your average income.
Find an Account with Liquidity
Ideally, you want to store your emergency money in a liquid, easily accessible account that doesn’t lose its value. That way, you know how much you have available in the event of an emergency and you can withdraw money quickly.
- Share Certificates & Savings Bonds (Early Withdrawal Penalties)
- Retirement Accounts (Loss of Growth, Early Withdrawal Penalties)
- Credit Cards (High Interest Rates)
Some people choose stocks or other market-based investments for their emergency funds because of their potential to grow in value over time. While this can happen, remember the changes in the market may put you at a disadvantage when it’s time to take your money out. You could end up with less than you put in.
Set Up a Special Account
Having an account specifically for an emergency can be a psychological boost that motivates saving. It acts as a reminder to not withdraw money from that account unless it’s absolutely necessary. For example, setting up a Savings Account specifically for your emergency fund and making a direct deposit in it each paycheck will help you build your fund quickly.
Hopefully you will never need to actually use your emergency fund, but having one provides peace of mind. If something does happen, we want you to be prepared. Start saving today.