One of the most important things you can do to secure your financial future and well-being is to plan for the unexpected. Creating an emergency savings fund that is apart from your primary checking and savings accounts is great way to make sure that you are prepared for whatever life throws at you.
Getting Started: Building an Emergency Savings Fund
While it may seem daunting to think about putting away a thousand dollars into an emergency savings fund that you can’t touch, the best way to get started is to start small. Put away whatever you can from each paycheck into a separate savings account. You can start by putting $20 a week into the account and just after six months you’ll have almost $500 saved.
Once you have figured out how to start saving, it’s time to set a goal for your emergency savings fund. The amount you choose should be figured based upon the level of security you have at your job, your current about of debt, any other savings that you might have, and any major changes you are anticipating in your life. This amount will be different for each person. A thousand dollar minimum is recommended for those who aren’t sure how much they’ll need to have on hand.
Growing Your Money: Open a Credit Union Savings Account
Another tip that will help you to save and grow your money is to put your savings in the right type of account. Speak with your New Bedford credit union representative about the different types of savings accounts available and ask which account would be best suited for an emergency savings fund.
A money market account will help you to grow your money faster, however a regular savings account might make it easier to access those emergency funds when you need them. Whatever type of account you choose, just make sure you have the option to take money out at least once a month without getting a penalty. While you don’t want to make it too easy to just take money out of your emergency savings fund, you also don’t want to be restricted.
Making It Work: Reviewing Your Savings Plan
Every couple months, review your emergency savings fund to make sure you have enough cash put away in case of an emergency. Think about any changes that have happened in your life since you initially set up the fund. Is your job more or less secure than it was a few months ago? Are you planning on having a child or sending an older child to college?
Whatever the changes that are happening in your life, do whatever you can to grow your savings accounts accordingly. Sometimes life has a way of changing the course of our goals. Fortunately, increasing your emergency savings fund is easy. Just start saving and adding to it a little bit at a time like you did when the account was new.
How Much Should I Be Saving?
Figuring out how much money to save can be difficult. While many experts suggest the thousand dollar minimum, others recommend that you save according to your monthly income to avoid financial struggles due to a loss of job, natural disaster, unforeseen illness or other emergency situation. Some suggest a minimum of three months of expenses should be set aside, while others will recommend six months of expenses.
Since monthly expenses can change depending on your particular situation, other experts suggest that you instead choose a specific dollar figure. Another common suggestion is that you pay off all high interest debt before you get started with any new savings accounts. This will help you reduce your debt and enable you to put the savings into your emergency savings fund instead, allowing your money to work for you.
The Benefits of Having an Emergency Savings Fund
An emergency savings fund can help you stay out of debt. While credit cards are great for emergencies, you won’t have to worry about being charged interest or carrying a balance if you have to use some of the money from your credit union savings account. An emergency savings fund also prevents you from having to take money out of your investment or retirement accounts, which can lead to withdrawal penalties and loss of future earnings.
An emergency savings fund also gives you peace of mind. Knowing that you have money available to pay for an emergency situation in your savings accounts works to reduce stress and allow you to focus on the situation instead. It can be a great comfort knowing that there won’t be any late fees, overdraft charges or other penalties coming on the next monthly bill.