Emergency savings can save the day
Saving money can be difficult, especially with the rising price of many goods and services. The Federal Reserve reports that 40% of American households are not prepared to handle an unexpected expense of $400.
What is an emergency fund?
Having a special savings fund in place to handle an emergency is a smart move for several reasons. Knowing you can handle a financial surprise relieves you of a stressful situation. It can also save you money in interest or payday loan fees you may incur if you need to borrow money to cover a bill on short notice.
How much should you have in your emergency fund?
As part of your financial planning, sit down and consider what level of expense creates an emergency in your household. Could you cover a $100 bill? A $1,000 bill? C
When choosing a target savings amount, consider your most likely emergencies. Is your heating system past its expected life? Do you have a child interested in playing an expensive sport? What would those costs look like?
What’s the best way to build an emergency fund?
If you’re able, create a fund and add to it every month. Consumerfinance.gov suggests setting up automatic transfers each payday period that go straight into your savings account. Even if it’s only a few dollars, getting into the habit of saving helps.
Some savers start simple by eliminating one coffee or lunch a week and adding that to savings. Others sell unwanted items and use the proceeds to start a savings fund.
Where’s the smartest place to keep your money?
Holding your funds in a bank instead of having cash on hand at home can help you earn more through interest, though it’s wise to do some research. Interest rates can vary widely, some accounts may charge a monthly fee, and others can offer incentives for opening an account.
What kind of things can I use this money for?
You can use this money for any unexpected expense that impacts your budget. Car repairs, medical bills and large appliances are among the most common emergency expenses. If you need draw from this account, make sure to have a plan to replace those funds so you’re ready for the next emergency.