“You need an emergency fund.” You’ve heard this before from your mother, the talking heads on TV, and now I’m telling you. So why haven’t you started yet?
It’s tough to save. I mean there are so many many things to do now that are much more fun that saving for something that might happen in the future.
But, what if it happens? That thing you dread? A car wreck, a layoff, a sick kid? Do you have the ability to face a $10,000 punch to the financial gut? Can you even handle a $1,000 new transmission in your car right now?
An SMR Research study finds that 43% of you reading this, can’t. Time to get moving!
A Starter Emergency Fund
Today is the time to start saving for an emergency. Life happens. Situations that you can’t control will affect your bottom line, that is why we prepare by stashing away some cash in a rainy day fund.
Start small. Put $1,000 in an savings account that you won’t touch unless there is an emergency. If you make less than $20 K a year, then a $500 starter emergency fund is fine. If you have an irregular income, then you’ll want more than $1,000 for your beginner fund.
Why not pay off my debt with that money? The point of this starter emergency fund is to keep you from going further in debt. This fund is just a small levy to protect you from the flood of debt. You’ll grow this amount, after you’re out of debt.
Get this done quickly! Work overtime or sell that junk in your closet to get this starter fund going. You’ve figured out debt is bad, so let’s avoid going further into debt by having a little protection.
Fully Funded Emergency Fund
You’ll want to top off your emergency fund (Video) once your debt is gone (not including your mortgage). How much will you need? Most experts recommend at least 3-6 months of necessary expenses. This is not 3-6 months of a full-blown budget, but only necessities. If you get into trouble, then we all could cut expenses: cancel gym memberships & cable subscriptions, stop eating out, etc.
How do I save for this? The easiest is to have a deduction automatically withdrawn from your account every month. An example would be to take $100 out of your checking on the 15th of every month into a high yield savings account (non-affiliate link) or into a money market fund.
Keep building up that amount until you’ve got 3-6 months of expenses. Kick in some bonuses and your birthday money and 3-6 months of expenses will be saved in no time! If you want to save more, then go ahead. Nothing wrong with a little extra protection if it makes you feel safe.
Imagine if you had $10,000 in the bank? How would that make you feel? Peaceful? Ahhh… Relaxed? Better than a back rub… Secure? You bet!
Photo by OliBac
Action: Start your Emergency Savings Fund today. Drop a comment when you’ve done this or if you have a question.