If you’re spending more than you earn, you’re going to have a hard time saving for your financial goals. And if you’re having to spend all your time working to pay the bills, you’re likely to burn out. That’s why you need to have an emergency fund. It should be enough to cover at least six months of expenses. If you have health insurance, use that to calculate how much you need. Many people don’t have the money to cover a major expense without massive debt, which can be disastrous. This post will introduce you to strategies and techniques to help you save money to prepare for future expenses and establish an emergency fund.
Have a Separate Emergency Savings Account
A good emergency fund can mean the difference between staying broke or not when it comes to emergencies. So, how much should you save? Well, the answer depends on what you need your emergency fund for. If you’re fortunate enough to have a job with benefits, you may not need a very large emergency fund—just enough to cover three to six months. But what if you don’t? If you’re unemployed and can’t make ends meet, you’ll need to start saving now, ideally in a savings account, but you can also consider getting a short-term CD.
Direct your Extra Money Into Your Savings Account
If you’re operating on a tight budget, you probably don’t have much in the way of savings. That’s why it’s a good idea to funnel extra money into a savings account to help you get back on your feet. All of us have experienced a financial emergency in our lives. Whether it is a surprise job loss, a medical emergency, or a major car repair, it is very important to have an emergency fund that can get us through these times.
The biggest hurdle to building an emergency fund is that most people have a very narrow view of an emergency. We tend to think that an emergency is something that only happens to other people. But the truth is that financial emergencies are just as common to us as life emergencies.
Break down savings goal to an achievable way
To make it easier to reach our financial goals, we recently created a savings/emergency fund calculator on our finance blog. The tool puts the odds in our favor by helping us create a step-by-step plan. However, it assumes you already know about using compound interest, the concept of savings, and the importance of having a rainy-day fund.
Although we believe in the importance of saving money, we’ve noticed that there’s a common misconception that the only way to accumulate a money cushion for an emergency is by saving for decades so that you have something in the bank. But this is not the case: anyone can set aside money for an emergency in the form of a savings account, where it is immediately accessible and earning interest. In fact, with many types of accounts, you can earn interest on your money as soon as you deposit it. Plus, if you are diligent about your savings, you can build up quite a cushion over time.
You have a great plan to start saving money to be put aside for a rainy day. But as you take steps to take that, you realize that you need more control over your finances. That’s when you start to think, “I can’t save up enough money this month. I need to break my goal down into smaller steps.” Having a step-by-step plan helps you hold yourself accountable since you know exactly what you need to do.
So, you’re at the age where you’re starting to think about retirement and how much money you’ll have once you’re no longer on the job. It’s a good time to start thinking about saving up for an emergency fund. A financial advisor will tell you that one of the best ways to prepare for emergencies is to have a good amount of savings in a fixed income retirement account. This is a great idea, but a lot of people have trouble getting started. How about you start by spending the next five minutes? The more you save in a retirement account, the better you will feel when something bad happens. The financial planner’s advice is correct, but there is a more important reason to start saving up an emergency fund.