Have an emergency fund handy … just in case
Everyone should have a fund ready to tap into in case of emergencies. Handy money helps keep a crisis from becoming totally unmanageable.
An emergency fund becomes so important when an unforeseen expense occurs. It gives you peace of mind to know you’re well prepared, according to Experian, the leading global information services company.
An emergency fund is a ready source of cash that can see you through for up to six months when the unexpected strikes.
“You never know when a financial emergency will arise,” Experian states. “It’s best to have money put away when you know you’ll need it.”
The Ask Experian blog shared reasons why you really need an emergency fund.
“These are liquid funds — cash — available for unexpected expenses,” said Rod Griffin, director of public education at Experian. “You have to be able to access the cash right away.”
To have and to hold
An emergency fund could be a savings account, but it needs to be one that you add to and will never make withdrawals from until an emergency strikes. It takes discipline.
“Emergency funds are unspecified,” Griffin said. “Other savings may be specifically for things like vacation or buying a car.”
To calculate your emergency fund, take your bi-weekly take-home pay and multiply it by it by 13. That’s six months of salary. It shows why you need to start to set aside funds now.
To build an emergency fund, set up automatic bank transfers each payday into your emergency fund.
Start with a set amount of at least 2 percent of take-home pay. That’s usually seen as not noticeable. Raise that amount if you can. The more, the better.
Keep your emergency fund as a secure, designated bank account — somewhere where you can readily access it in an emergency. Yes, a mattress is readily accessible, but really uncomfortable stuffed with money.
Add to your savings account whenever you have spare funds. The most common source is tax refunds before you fall prey to the temptation of the latest big-screen TV.
“Make it automatic,” Griffin said. “If you get a raise, auto deposit the amount. You won’t miss it — as much.”
The biggest threat to saving is confusing wants with needs. Today’s bright shiny object is more attractive than long-term financial security.
Save and pay
The good news is that you can create and add to an emergency fund while paying off debt. Treat your emergency fund as another debt that must be paid. Again, it’s discipline that helps focus your needs vs. wants.
People falter when building an emergency fund when they don’t follow through. If not done as a routine or automatically, it’s too easy to let it fall by the wayside with a false sense of security.
Griffin cautioned against being impatient.
“Don’t want too much, too fast,” he said. “Set low goals and be patient. Don’t get frustrated and give up.”
Don’t be merely interested in starting or building an emergency fund. Just do it. Sooner or later you will regret procrastinating today.
About The Author