A major car repair, job loss, or medical emergency—all are scary realities and could lead to financial ruin unless you’re prepared. While these misfortunes are often unpredictable, there are things you can do to prevent financial catastrophes. With a new year on the horizon, now is the perfect time to get your emergency fund in place.
Build up your emergency fund. According to financial experts, you should have three to six months worth of living expenses saved in an emergency fund. This should protect you in case of a job loss or another unexpected financial hardship. While that amount might seem daunting, you can start small. Make a goal of saving one month’s worth of living expenses in six months or a year. This will help boost confidence in your saving abilities while getting you to your goal.
Determine where to store your money. Your emergency fund needs to be readily available, so don’t tie it up in things like investment accounts. A high-yield savings account or a money market account is a good place to start. If it has checks or a debit card, it’s a safe bet. Set up an account that’s separate from your regular savings. Some even recommend getting an account at a different financial institution altogether. Consider setting up automatic deductions into that account so you don’t even need to think about it.
Find extra money. If you find it difficult to build up your emergency fund, look for other ways to contribute like putting your tax return toward your fund or selling items you no longer need or use. Closely examine your household budget and discover ways to save. Maybe it’s time to cancel subscriptions you don’t need (cable, magazines, or the gym), or cut down on eating out. And if you haven’t done this yet, make a household budget so you know exactly where every dollar you earn and spend is going.
Maintain your fund. It’s recommended that you visit the dentist every six months for a cleaning and to spot any problems before they become major issues. The same attention should be paid to your finances. Commit to regular check-ins to make sure you’re on track with building up your emergency fund. If you do and a financial disaster occurs, the impact will be much less devastating.
Presented by Member One Federal Credit Union