According to a 2022 Bankrate survey, only 44 percent of Americans would be able to cover a $1,000 emergency from their savings. While unexpected crises happen, from car troubles to medical visits and broken home appliances, being prepared can help make these situations less stressful. An emergency fund provides a financial safety net and peace of mind in the event of a sudden challenge. Why is this type of savings vehicle important?
What Is an Emergency Fund?
This essential tool for financial planning helps you avoid serious problems down the road. Experts recommend saving 6 to 12 months of living expenses, so you won’t have to rely on credit cards, loans or other forms of debt in the event of an emergency. How do you start?
1. Make It Part of Your Budget
Once you have calculated your average monthly spending on necessities, consider your emergency fund contributions like a monthly bill added to your budget. If you don’t have excess income, reduce other expenses to make sure you can make monthly installments.
2. Set Realistic Goals
Establishing specific goals can help you stay motivated. Start small and work towards saving 3 months of living expenses. If you’ve determined $6,000 to be your target, then focus on lesser increments, such as $250 monthly contributions. Regularly monitor your progress to make sure you’re staying on track.
3. Open a Dedicated Savings Account
It’s crucial to prioritize saving for emergencies over non-essential purchases. Opening an account specifically for these funds can help you accomplish this goal. Set up direct deposit from your paycheck into a high-yield savings, money market or CD account.
4. Take Advantage of Extra Funds
If you take on extra shifts, receive a tax refund or get a bonus at work, continue building your emergency fund with the additional cash. Selling unwanted items or picking up a side hustle are other popular ways to earn more money.
5. Get Creative with Saving
Make minor changes to your everyday routine, like brewing coffee at home and bringing lunch to work. It may also be beneficial to contact your utility and credit card companies to adjust due dates for bills or switch to a lower plan. On the other hand, if your circumstances ever change, remember to account for any expense increases.
To explore savings account options and start an emergency fund, contact Ion Bank today.