Whether you call it a rainy day fund or a financial security blanket , it’s important to make sure your emergency savings account is in good shape.
This account is a buffer for your regular financial responsibilities in the event that an unexpected and unfortunate event should occur.
If you’ve ever experienced a job loss, a sudden emergency room visit that wasn’t completely covered by insurance or had your car break down, you may know what it’s like to worry about how you’re going to pay for a surprise expense.
This is why an emergency account is there.
You will already have the money tucked away, and you won’t need to worry about adding to your credit card debt or wonder if you’ll still be able to pay your rent after all is said and done.
Since no one knows when they’ll experience an emergency, it’s best to get as prepared for this as possible as quickly as you can. The good news is, once you meet your emergency savings target, you can move onto other savings goals, like adding to a future home fund or a travel money account.
Logistics of Saving
Various financial experts offer different advice as to how much you should keep in your emergency spending account.
They all agree, however, that it depends on your current income and necessary spending. Some believe that saving enough for 3 months worth of finances is a good goal, while others say to save as much as 8 or 12 months worth. SmartAsset has suggested aiming for a middle ground of six months.
Once you have your savings goal in place, you’ll need to decide where to keep it.
While you may already have a checking account for everyday expenses, many people find it is difficult to save money in an account they access regularly. Instead, consider opening one of these other options:
- A savings account at your current bank: This could make it easier to deposit savings from your checking account, but it might still be too accessible for your liking.
- A savings account at a credit union: Ray Lucia, a radio host who discusses personal finance, told Bankrate that he has recommended these banks because they allow members to start with lower dollar amounts versus larger institutions.
- A money market account: SmartAsset explained that these are good options because they are as accessible as a checking account and users can write checks that draw directly from the account, but they also accumulate interest.
Now that you have decided what your savings goal is and where you want to keep the money, it’s time to start contributing to it.
You’ll want to have a plan established to add to it regularly from your current income stream. Bankrate suggested thinking about it just like you do your other bills. It’ll be an obligatory payment of a fixed amount that you will make every month.
Soon, you’ll see your emergency fund grow and you will feel more at ease knowing you have a safety net should something unexpected happen.
Of course, you can also work to make the balance in your financial security blanket grow faster with some creative savings strategies.
There are two main ways to look at how to bolster your savings: You can either spend less or make more.
Or, if you want to make the process go by even faster, you can opt to try strategies from both schools of thought.
Chances are, you have a good amount of things in your home that you just don’t need anymore. Host a garage sale to get rid of those DVDs you won’t watch, clothes you won’t wear and decorations you have stuffed inside your closet. If you don’t have the space for a garage sale, list your sale online to websites like Craigslist or eBay.
If you have the time and the energy, you can look into getting a part-time job.
Filling your nights and weekends with stocking grocery store shelves or handing customers burgers and fries might not sound glamorous, but when you see how fast your savings account is growing, you’ll be happy for those hours you spent working instead of watching TV or spending even more money.
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Spending less money will also give you quicker results. Try to cut your grocery bill by only shopping sales and deals. Stock up on items when they’re at their cheapest so you never have to pay full price again.
Living Well Spending Less also suggested going a full month without spending any money. While a no-spend month will be difficult, think about the contribution to your savings account you’ll be able to make at the end of those 30 days.
You can also take a close and honest look at your current spending and determine where you are overspending.
Do you have cable but only watch TV once in a while? Consider cutting that cord to avoid those monthly bills.
Where do you eat lunch during the week? If you find yourself finding fast food places every day at noon, try bringing your own lunch to work instead to save on eating out.
Saving money takes a fair amount of planning, patience and strategy. But in the end, it’s well worth it.