Building an Emergency Fund: What You Need to Know
An unexpected expense, illness, or job loss can quickly turn a financially stable family into one on the verge of bankruptcy. If you don’t have an emergency fund that you can easily tap into in tough times, a financial issue can quickly turn into a crisis. Many families put money into retirement and other long-term investments without thinking about also establishing a liquid fund. Here is what you need to know about building the emergency fund you need to have financial peace of mind.
How Much To Save
Everyone’s circumstances are different, and this will affect how much money you need to have in your emergency fund to feel safe. However, a good rule of thumb is to have three to six months of living expenses that you can easily access. This includes all of your large bills (mortgage, utilities, car) as well as what you spend each month on groceries and other essentials.
Where to Save It
The most important aspect of an emergency fund is that it’s accessible in an instant without negative tax consequences or a lot of hassle. Usually, a savings account is the best place to put your fund. You can still gain a little interest and can have the funds same-day in most cases. Make sure you have a separate account for your emergency fund so you’re not tempted to dip into it for everyday expenses or splurges.
How to Build It Quickly
If you don’t already put money into an emergency fund, you may wonder how you’ll ever free up extra cash to do so. Here are some ideas that almost every family can quickly and easily implement to build their fund.
Cut Out a Daily or Weekly Splurge
Almost all of us have a splurge that can be easily cut out. It could be your regular latte fix or your daily lunch deliveries at the office. By skipping the latte two days a week or packing a lunch, you can save a few bucks a day. Those add up quickly when you look at it over a 3-4 month period.
Save Your Tax Refund
Do you get a large tax refund every year? Do you usually splurge on a vacation or other luxuries? Try saving you tax refund this year for a quick jumpstart on your emergency fund.
Set Up an Automatic Withdrawal
Saving money before you have a chance to spend it is one of the smartest pieces of financial advice you can follow. Set up an automatic withdrawal that immediately puts a portion of your paycheck into your emergency fund savings account. Even if it’s only $25-$50 a check, it’s a way to get started and will add up quicker than you think.
We never know what the future will bring. Having an emergency fund helps us gain peace of mind that we can withstand a financial setback or unexpected expense. If you have questions about setting up an account or would like more information, please reach out to one of our knowledgeable team members today.