Nobody wants to spend time thinking about the various things that can occur unexpectedly in daily life, such as job losses, vehicle breakdowns and sudden medical emergencies. However, if you aren’t financially prepared for emergencies such as those mentioned here – or any other unexpected event that will cost money to rectify – you won’t only have the stress of the situation itself to deal with; you’ll also have the additional worry of wondering how you’ll be able to cover these unexpected expenses.
How much should be Saved for Emergencies?
While there’s no hard and fast answer to this question, many experts recommend having an emergency fund consisting of at least $500. This will often be sufficient to cover an unexpected repair or expense that wasn’t part of your originally planned budget.
Once you’ve managed to save $500, it’s recommended that you continue to build your savings in this account until such time as you have funds available to cover at least three to six months worth of regular expenses. If you’re a freelancer or seasonal worker, you may need to consider saving a bit more to cover the times when you’ll be out of work.
How to Build an Emergency Fund
While you may think it will be impossible to build an emergency fund, there are often random expenses in a budget that can be trimmed or even eliminated – even temporarily. Here are some ways in which you can get the savings ball rolling:
- Cancel subscriptions. While items such as Amazon Prime, Netflix and Hulu are nice to have, they aren’t genuine necessities. Halting these for even a month or two can help give your emergency fund the boost it needs
- Save that stimulus check or tax refund. Although it’s tempting to blow that stimulus check on a vacation, new clothing or other treats, you’ll enjoy more peace of mind over the long term if you know there’s money set aside to cover an emergency. Consider treating yourself to something small and saving the bulk of that check
- Redirect your small change. Nowadays, there are several apps available that can help you save by rounding up purchase amounts and putting those few pennies, dimes and quarters into your emergency fund account
- Pay yourself first. If your employer offers direct deposit on payday, they may be able to divide your paycheck in such a way that a small portion of it goes automatically into your emergency fund account. Not seeing those funds in your main checking account will make it less tempting to use them
- Sell unwanted items. Have your hobbies/sports/interests changed over the years and you’re now sitting with unused equipment relating to them in your garage, basement or attic? If so, consider placing ads to sell these items online. Funds obtained from this can then be placed into your emergency fund as well
It’s recommended that your emergency fund be a savings account that offers a good rate of interest, but that is also relatively easy to access. This will help ensure that while it can be obtained in an emergency, it won’t be too tempting to dip into it for non-emergency expenses.Continue reading