Do You Have an Emergency Fund?
Many people think that funding an emergency savings account is only necessary if you own something valuable, like a home or car. In reality, everyone should save for an emergency. No matter your budget, saving in any increment is better than not saving at all. Here are a few methods expert financiers rely on to contribute to their emergency funds.
Get into the habit of paying yourself first. When money comes in, make a concerted effort to set some aside for your emergency fund before taking care of other responsibilities. Waiting for leftover dollars at the end of the month is unrealistic and unsustainable.
Accumulate at your own pace. This is especially important for beginners like college students or entry-level employees. Avoid creating an emergency fund simply to get a new car or go on a vacation. Live with your old model and sacrifice a few trips while you build your fund.
Open an account. Set up an account – preferably one with direct deposit that isn’t attached to your checking account. If available, choose one that’s high-interest and won’t penalize you for dipping below a certain amount.
Save for retirement, too. Saving doesn’t mean putting all of your eggs into one basket. Set up multiple accounts so that the money you’re saving is distributed appropriately, or pay your emergency fund, then save for retirement, then prioritize bills, investing and other expenses.
Avoid using it for debt. Savings accounts can be set up for all kinds of reasons, but try not to dip into your emergency fund to pay down debt. It’s better to create a separate account strictly for debt – that way, you won’t dig yourself deeper in the event of an emergency.
Don’t withdraw unless it’s an emergency. What qualifies something as an emergency? For savvy savers, that means only when the unexpected happens. Unforeseen medical bills and necessary car repairs are good examples. Things you can plan in advance for, like holiday gifts, should not be funded by your emergency account.