Approximately 56% of Americans can’t cover a $1000 emergency bill with their savings. Saving for emergencies creates a financial buffer that can help you in times of need without depending on high-interest loans or credit cards.
You never know what unexpected difficulties may turn up this year or later on, so start saving for emergencies right now.
Not sure how to get started? This guide is for you – read on.
What is an Emergency Fund?
An emergency fund is money you put aside for life’s unanticipated events. Some of these emergencies include house repairs, automobile repairs, loss of income, and medical bills.
Why is an Emergency Fund Necessary?
Emergency funds are a vital part of a firm financial plan. They create a financial cushion that keeps you afloat during unexpected times. Having an emergency fund is especially important for people who are having difficulties accessing loans for emergency use.
How Much Should You Save?
Start small and work your way up. Ensure your emergency fund covers at least 3 to 6 months’ worth of expenditures. The size of your emergency fund will depend on several factors, including lifestyle, expenses, financial situation, and debts.
Where Should You Put Your Emergency Fund?
First, consider how regularly you get your money. It’s best to put your emergency funds in a high-interest savings account with easy access. Your savings should be in a separate bank account from your usual day-to-day account so that you may not be tempted to use your reserves.
You may also put your funds in a prepaid card, keep your money on hand, or with a family member you trust.
Steps to Saving for Emergencies
Starting to save for emergencies can be a little challenging, especially if it’s your first time. But it doesn’t have to be. Here are easy steps you can follow:
Step 1: Make a Budget
This will help you maximize revenue and manage your costs. You can use a budgeting app to get a clear view of your financial condition and know your emergency fund goal.
Step 2: Set Up a Direct Deposit
Automatically deposit your emergency funds directly into your savings account. This does not only make savings easier but also helps keep you on track with your goals.
Step 3: Progressively Increase Your Savings
Slowly increase the amount you’re putting in your emergency fund until you achieve your savings goal. Also, consider saving unexpected income to grow your emergency fund faster. Unexpected income may be in form of a lottery, tax refunds, cash gifts, bonuses, and even inheritance.
Step 4: Continue Saving Even After Reaching Your Target
Some emergencies need more than a six-month saving plan. So it’s always important to have more money saved up for such emergencies. So don’t stop saving regardless of how little it is.
Start Saving for the Unexpected Today
Set up your safety net today to cover unexpected bills and make life easier for yourself and your family. Before you start saving for emergencies, align your goals and ensure you can differentiate what is an emergency from what is not.
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