When it comes to emergencies, it is always better to be over prepared rather than underprepared.
However, it can feel impossible to put aside money that could be better used in the moment. When it comes to savings, a little can go a long way.
- Even if you are just putting a tiny amount of money aside each week, it will begin to build up faster than you can imagine. In order to avoid feeling overwhelmed, you can start by setting aside $10-$20 a week.
- Once you have a solid foundation for your savings account, you can create a separate account for an emergency fund. A savings account is typically where you save for a specific goal such as a down payment on a car or home.
- Most of the expenses that you should expect to come out of a savings account should be planned expenses instead of emergencies. Your savings account should be easily accessible.
- As for an emergency fund, this should be used in the case of unexpected bills, deaths, job loss, illness and more unexpected life circumstances. This account should be large enough to cover 3-6 months of expenses, if not 6-9 months. The account should be less accessible so you don’t feel as tempted to dip into it outside of an emergency, but it can still be accessed quickly in an emergency.
- When it comes to finding extra cash to put aside, take advantage of what you already have. For example, if you receive a tax refund, consider putting some of it into your emergency fund. Another option is to go automatic when it comes to having money taken out of your check every week. By going automatic, you may not even notice the money is gone. Establishing a budget can help to minimize spending in unnecessary areas and maximize the amount you can set aside.
- Once you’ve established a plan for saving, it is important to figure out where you’re putting the money. A savings account at your bank or credit union is a good place to start so that your money is easily accessible. A CD, also known as a certificate of deposit or a share certificate, will earn more interest than a regular savings account. However, the money must stay in the account for a certain length of time to earn the promised return.
A general rule of thumb for savings is to have enough money saved up to cover three to six months of living expenses. Even though you cannot predict emergencies, it is always good to be prepared for one.