Planning for emergencies is something no one likes to think about but is one of those things everyone needs to do. In a perfect world unplanned situations would never occur. Cars wouldn’t break down. Roofs wouldn’t leak. Children wouldn’t get hurt. But life throws curveballs at you and encountering an emergency that has the potential to cause financial burden is almost inevitable. Having money in the bank to cover those unexpected expenses can reduce stress and keep you from relying on credit cards and loans to make ends meet.
Here are four easy and effective ways to establish and maintain an emergency fund.
- Set a goal. Deciding on a realistic goal for an emergency fund will vary depending on your income and expenses. Generally, financial planners advise setting aside enough money to cover at least six months of expenses, although as little as four months may suffice for some. For many people, a goal like this may seem unattainable and causes more headaches than need be. Contributing a set amount each week will allow you to get in the habit of saving regularly until your goal is obtained.
- Pump it up. When you get a bonus, cost-of-living adjustment, tax refund, or windfall, consider using a portion of that money to bolster your emergency account. Fight the temptation to increase spending with every new dollar that comes along.
- Make it automatic. With online banking, it’s easy to set up routine transfers from your regular checking account to a separate savings account. If allowed by your employer, allocate a portion of each paycheck to an emergency fund. Consider establishing the account at a financial institution other than your regular bank. As the saying goes, “Out of sight, out of mind.” If the money never shows up in your regular checking account, you’ll be less likely to use it for everyday spending.
- Sell stuff and slash expenses. Yard sales, online auctions, consignment shops — selling items via such venues can generate cash to bolster your emergency fund. Take a hard look at your budget and consider everything fair game: expensive dinners, vacations, cable television, and so on. You may find that a surprising number of dollars can be freed up and stashed away in savings. The key, of course, is to direct those savings — immediately, if possible — away from regular spending and into your emergency account.
When facing life’s unavoidable bumps in the road, an emergency fund is essential to maintaining financial security. If you’d like more ideas for setting financial goals or building up an emergency fund, give the professionals at Alloy Silverstein a call.
