When it comes to one of those last-minute emergencies, regardless of the extent of the emergency, one may find themselves at odds when it comes to having healthy savings. While most people who are financially comfortable have a savings account, an emergency savings fund can help alleviate any concerns one might have regarding medical bills, automotive issues, unexpected home renovations, and even unemployment. Studies have shown that many Americans are one major emergency away from either bankruptcy or homelessness, depending on their annual income and current bills. Having an emergency savings fund is essential to your financial health, as it provides a buffer against your everyday bills when something unexpected occurs.
Here are a few ways to plan ahead for a “rainy day” without causing undue financial harm to your regular accounts:
Decide how you want to create an emergency fund. An emergency fund is a savings account that you keep healthy and available for unexpected events and/or emergencies, which can help you cover a multitude of expenses, including car repairs, home repairs, medical bills, and unemployment. Having these funds set aside helps decrease the need for loan or credit card debt. This account can provide a buffer to prevent additional debt and lessen your monthly bill payments.
Check out your monthly bills and your paycheck to decide how much to save. Generally, a rule of thumb is to have three to six months of expenses saved in the case of an emergency or unexpected event. A better way to calculate how much you need to put away in your emergency fund from every paycheck is to track your spending for a month to see how much you’re spending on bills and necessities. Starting small is easy – and helps you develop solid financial skills in the process. Once you’ve started saving and have some degree of funds in your emergency fund, consider adding to it every month if you can.
Get your savings started. Write down your savings goals after tracking your monthly expenses every month. Stick to this goal as best as possible; consider keeping a ledger to track how much you’re saving, or visit the App Store or Google Play to discover mobile apps that can help you in the process. Automating your savings via direct deposit from your checking to a savings account will help you save money in no time without even knowing it.