“It is better to have it and not need it, than to need it and not have it“. Throughout my childhood, my father ingrained this phrase into my heart, soul, and mind. Seriously! He said it ALL the time, and it drove me nuts! At that time, I thought this catchy phrase was just about not forgetting my rain coat. I had no idea how much it would impact how I make financial decisions as an adult.
With job loss, vehicle breakdown, and dental surgery (just to name a few), I have experienced my fair share of unexpected expenses. Thankfully, I was able to take these in stride due to my emergency savings. Without that “rainy day stash“, I would have been financially sunk!
A recent survey found that about 63% of Americans say they are unable to handle a $500 car repair or a $1,000 emergency room bill. If you find yourself in this statistic, follow these tips to build your emergency fund and become better prepared for unexpected expenses:
- Start with a specific goal in mind: Set a small goal of $1,000. Then work your way up to the amount needed to cover several months’ worth of expenses. This will vary from one person to the next depending on their income, expenses, and lifestyle.
- Decide where to keep the emergency fund: Determine the best option to easily make deposits without too easily making withdrawals. This can be through standard savings accounts, online savings accounts, money market accounts, savings bonds and/or certificates of deposit.
- Treat emergency savings like a bill: Set a monthly goal to pay yourself and make it a part of your regular, balanced budget. Simplify the process by using automatic monthly transfers or direct deposits from your paycheck.
- Only use this savings for emergencies: This fund should only be used for expenses that you cannot see coming, such as job loss, illness, or accidents. Things like vacations, Christmas presents, and annual insurance payments should be considered elsewhere in your budget and should not be paid for from this account.
- Pace yourself: Keep your expectations realistic and expand your long-term goals as you reach your short-term goals. Understand that it will take some time – Know that you can do it!
WATCH this video for more insight on the beauty of emergency savings.
While I once hated it, I can honestly say that I have heeded my father’s teaching. Being able to withstand the unexpected is critical to avoiding financial ruin. So, would you rather have an emergency fund and not need it OR need an emergency fund and not have it?
Until next time, keep calm and keep up with the CASH blog!