Since we were kids, most of us have received the advice from our parents and grandparents to be sure and have an “emergency fund.” The idea is that you need to put money aside when times are good so that you’ll have some money for when times are bad.
A solid emergency fund is perhaps one of the most important tools in developing and sustaining financial security. Most financial experts recommend having between three to six months of living expenses socked away because no matter how well things are going, bad things will happen from time to time.
Here are a few tips on how to grow your emergency fund:
- Determine how much you need. Start building your emergency fund with a specific goal in mind. While your savings goal will depend on your income and expenses, a general rule of thumb is to save enough to cover three to six months’ worth of expenses.
- Decide where you will keep the fund. Your rainy-day emergency fund should be easily accessible, but not so easily accessible that you’ll be tempted to make withdrawals for everyday spending. Many like to keep the money out of their everyday checking account, and put it into a less accessible account, such as a savings account or CD.
- Treat it like a bill. Establish a monthly savings goal and make it part of your regular budget. We recommend setting up an automatic monthly transfer, just as you would with an electronic bill payment, or Christmas club deposit, to ensure the money is saved each month.
- Use it only for emergencies. An emergency fund is for the unexpected. For example, appliances that stop working, getting laid off from a job, a long illness, or an accident. You use an emergency fund for any expense you cannot foresee.
- Take it slow. Rome wasn’t built in a day, and neither is an emergency fund. Any action you can take to establish an emergency fund will do you good. For example, if you transfer $10 to a savings account each week, you’ll have $500 in a year. When you get a tax refund or commission check, add it to your fund, and gradually boost your savings by selling items you don’t need on eBay, holding a yard sale or putting change into a jar every evening. By stashing the extra cash, you’ll see your savings soar.
If you have any questions please feel free to contact us.