How to Start an Emergency Fund
Easy ways to save for a rainy day
With the exception of trust fund babies, we don’t know anyone who hasn’t found themselves strapped for cash at one time or another. If it isn’t a sick kid, an emergency call to the plumber or the car breaking down, it’s something that is guaranteed to do its best to drain your bank account and empty your wallet.
A busted transmission? Will run you about $2,000. A busted hot water heater? Can cost you up to $3,500. And just one trip to the emergency room will leave you shelling out $6,500 and up depending on what’s wrong with you. All the more reason to make sure you’ve got extra funds in case of an emergency.
So how do make sure that these events don’t derail your budget? Start saving for an emergency fund. Here’s how to manage your finances for personal disaster relief.
1. Decide how much you want to save. Most people stash three to six months worth of living expenses away in case they lose their jobs or are injured. You should aim for that, but if you don’t think you can achieve that easily, start with a fixed dollar amount and go from there. Can you do $1,000? What about $500? Whatever you’re comfortable with, start with.
2. Look at your bills. Now we’ve got to come up with that money. Calculate how much you make, how much needs to go to bills, food, gas and expenses and then take a look at what’s left over. Ideally, you’ll save all of it, even if you find yourself with only $25 extra each month. You’ve got to start somewhere. While you’re looking at your bills, take a look at bills you can cut. Do you really need to go out to dinner three nights a week? Can you cut it back to one? That extra $40 a week can add up to over $2,000 in just one year!
3. Open an account. There are many different ways to save money. A savings account, certificate of deposit or money market account all offer different and easy ways to save money. If you’ve got bad credit or financial problems, you will have to do a bit of homework. There are banks out there that will allow you to open a savings account without running a credit check (Ing Direct is one) but you’re going to need to shop around. Do your research, talk to your bank and figure out which option is best for you.
4. Set up automatic deposits. It is way too easy to tell yourself you’re going to save money and then forget or spend it come deposit time. Set up an automatic deposit with your bank each month and treat it like a bill – no excuses.
5. Don’t touch. The only way your emergency fund is going to grow is if you don’t take any money out of it. And besides, the whole point of having an emergency fund is for emergencies – and we hate to break it to you, but shoes, rims and jewelry are not emergencies.
Remember, this is going to take time. Creating an emergency fund is not going to happen overnight, but if you set your mind to it you’ll not only be able to start an emergency fund, you’ll be able to start saving for the more fun things in life, like vacations that don’t involve kiddie pools and crashing on your mother’s couch.
