Nowadays, people are certainly concerned with being prepared for an emergency. One of the things that you want to consider when preparing for an emergency is having an emergency fund. Having an emergency fund in times of distress can help keep you afloat without having to rely on creating credit card debt or taking out loans. This can be especially important if you already have some debt because you don’t want more debt piling up. That would make an emergency situation even more stressful.
There are several questions that you need to ask yourself while planning an emergency savings. These are questions like: How much do I need to save? How do I start? and What are different ways I can save for an emergency? Well, this article will help you determine the answers to those questions.
How Much Should You Save?
Everyone’s response to this question might be a little bit different depending on circumstances and location. However, it’s a good idea to have at least $500 in your savings for an emergency. It would be even better for you to have up to half of a year’s worth of expenses. This would mean that you would be financially safe for up to six months’ worth of unemployment or disaster. Of course, depending on household size, half a year’s worth of expenses will vary from household to household. For example if you’re single and live by yourself, then half a years worth of expenses will be very different from a family of 6.
It seems like a big goal to have. So how can you start? We’ll go over five ways that you can start saving money for an emergency fund now and watch it add up.
Check Your Budget
Creating and sticking to a budget is a great way to take charge of your finances. By setting predetermined amounts for each of your separate expense items regularly you will be able to control your spending. If you already have a budget and you stick to it then that’s great. But theres still more that you can do. Next, check it to see if there are places that you can slim down. For example, do you hardly use that cable plan that you’re paying for? If not, then consider canceling the plan and putting that money monthly into a savings account. Taking steps like this will help you see money add up into an emergency fund without you having to set aside extra money.
Savings Goals
Once you calculate the amount that you want to eventually have in your savings in case of an emergency, you can determine the time frame for saving up that money. Set up a weekly or monthly savings goal. Having this goal in regular intervals will help you get into the habit of saving rather than spending. Seeing your funds add up overtime will also make the task of saving up so much money seem less scary. Check on your mobile banking app or call your bank to see if you can get money transferred from your checking account to your savings account on the day that you get paid. Having this automatic deposit into your savings account will help you be less inclined to spend that money on other things before depositing it into your savings.
Keep the Change Programs
Did you ever have a coin jar or piggy bank as a child? Remember that feeling of excitement you experienced as you saw that jar fill up? Keep the change programs help you save money in the same way. When you sign up for a keep the change program with your bank heres what happens. When you use your debit card you will be charged an even number to your account and the change will go directly into your savings account. This is the equivalent of having a change jar in your house. Overtime that money will add up and you’ll have an emergency fund.
If you do carry cash on a more regular basis, then you can still do the same thing. When you pay with a bill you can drop the change into the jar as soon as you get home.
Save Your Income Tax Money
If you’re not self-employed, your income tax money can be an easy way to give a big boost to your emergency fund. Saving your tax refund instead of spending it all can be a great way to learn to be responsible with your money. While filing your taxes consider getting your tax refund deposited directly into your emergency savings account. Or make an adjustment to your W-4 so that less money is withheld. You can then put the extra money into your emergency fund and watch it grow.
Direct Deposit into Your Savings
If your employer offers direct deposit, then they might also offer ways for you to split up your paycheck into separate accounts. Every time you get paid you can put a percentage of your paycheck into your primary checking account and another percentage into your emergency fund account. This helps the saving process become even more automatic