Ways to Start an Emergency Fund
Posted By :Ben Williams
Posted At : Tuesday, Jul 27, 2010
“The best laid plans of mice and men often go awry.” In life there will always be events that happen that we had no way of foreseeing, these can range across a broad spectrum from a flat tire, to a tornado wiping through your office building. Financially, these events can often be very disrupting, and although they may take just a few moments to occur, they may take a lifetime to correct. In order to avoid financial turmoil, we need to start “expecting the unexpected” by creating an emergency fund. An emergency fund provides us with an income stream that can replace a lost income or with money to use for emergency purposes instead of having to rely on a credit card with an outrageous interest rate. While emergency funds are a financial necessity, they are often easier said than done, but here are a few tips you may find useful for starting one.
Determine your need-In order to know how much to save, you need to know how much you spend. Now this does not include luxury items like the espresso you treat yourself to on occasion, but only the essentials that you need month to month. Most financial experts say it is good to have an emergency fund that will cover anywhere from three to six months expenses. Determine how large you want your fund to be and keep that number in mind. Creating a financial goal is often the first step to financial success.
Start Small, Change Can Add Up- Once you have your savings goal in mind start putting away money towards it. This doesn’t have to be large amounts at a time, if you save your change from daily purchases; you would be surprised at how fast it can add up. Also, enroll for programs like Bank of America’s “Keep The Change ®” This program will automatically round up any purchases you make with your debit card and transfer the difference into your savings account.
Automatic Deductions-A good way to save is to make sure that you never have access to the money to spend. This can easily be done by requesting a deduction from your paycheck that is automatically transferred into your savings account. If you don’t have the financial discipline to save on your own every month, this tip can be a good one for you.
Budget and Save the Remainder-If you are someone who budgets, a simple way to save money is to allot yourself more money than you planned on using for expenses like groceries and gas. For example, if you normally spend $225 on groceries, budget $250 dollars. After you have made your purchases, transfer the money you didn’t spend into your savings account. This tip does require a higher degree of financial discipline, but the money that you save will add up fast.
Cut Down Expenses-One of the easiest ways to save is to cut down on expenses. This can be done in a many different ways. You can save by bringing a lunch everyday instead of eating out. Or you can save on gas by not going any faster than 65 mph. However you do it, cutting down on expenses can greatly increase your savings. Just make sure you are putting the money away instead of putting it towards something else you don’t need.
The most difficult part of an emergency fund is starting one, hopefully these tips will assist you on your way to protecting your financial future. Once you have set up an emergency fund there are several things you can do to maintain it. First, put the money in an interest bearing account. This can be in a CD, treasury bonds or a savings account at the bank. Having your money gain interest will help your money to grow and also to protect it from inflation. Once you have your money stashed away remember that it is only for emergencies! You should not be drawing it out except to cover unforeseen expenses or if your current income stream is cut off. With an emergency fund you will gain peace of mind in knowing that your finances are secure. And when life does throw you a curve, you will be ready for it!