As featured in the Finances FYI section of the the Seattle Times
By 1st Security Bank
Securing your financial future takes disciplined spending and a forward-looking approach. One of the best ways to prepare for the unexpected is to create an emergency fund.
Whether it’s for a rainy day or something more serious, having an emergency fund can keep you on the path to meeting your financial goals. With this guide, you’ll be ready for the unexpected and closer to financial freedom.
While it’s impossible to know how much you’ll need in case of an emergency, you should set concrete, attainable goals each month to help build your fund. Most financial experts recommend having at least $500 in savings, but most emergencies will require much more than that.
Some experts suggest trying to save as much as six months of income if an emergency leaves you unable to work. In this scenario, you’ll likely be facing medical bills and prescription costs, as well. The important thing is to start saving because during an emergency, every penny counts.
Use a savings account
Ensuring you dedicate funds specifically for emergencies and using a hands-off approach will be vital in building a successful fund. Instead of keeping a set amount in your checking account, open a savings account for emergencies. This will help you visualize growth and make it slightly more difficult to access the money for impulse buys.
Certain savings accounts also offer features to put your money to work for you. Look for savings accounts with high interest to add a little extra to your fund each month it stays in the bank. While stocks and other investments might offer high earning potential, they don’t provide the easy accessibility you’ll desire during a crisis.
Keeping an emergency fund in cash is great for convenience, but there are inherent risks when keeping large amounts of money out of the bank.
Any unexpected income like tax returns, inheritances, or work bonuses is a great way to quickly boost an emergency fund. Try setting aside some or all of these windfalls to help cover you when you need it most. Some people even add extra withholdings from each paycheck to make sure they get the biggest refund possible.
One successful saving strategy is to set up automatic deposits. Sending a portion of each check directly to savings will help reduce the urge to spend and ensure you’re reaching your monthly goal. Try incorporating smartphone apps that automatically round up your purchases and save the difference. Make it as easy as possible to save!
Reward yourself but keep saving
Reaching goals is important, and it’s definitely a reason to celebrate! Be sure to reward yourself for achieving your monthly or yearly savings goals by buying something you enjoy. This shouldn’t break the bank or throw future goals off track, but saving money needs to be fun, and you should occasionally enjoy the perks of having a bigger account balance.
With a solid plan and smart spending, you can make it through an emergency with financial security. Setting goals and staying motivated can help your savings grow faster than you ever thought possible! Celebrating wins is important, but continuing to look ahead will help your financial plan thrive. Follow these tips to make sure you’re covered when the unexpected strikes.