Emergency Fund

Today I want to talk about the steps it takes to start and emergency fund. First and foremost, you may be wondering what exactly an emergency fund is and how do I get one. Well an emergency fund is a readily available source of assets to help people navigate financial dilemmas, such as the loss of a job, a debilitating illness, a major repair to home or car (not to mention the kind of major national crisis the coronavirus pandemic has created). The purpose of this fund is to improve financial security by creating a safety net of cash or other highly liquid assets that can be used to meet your emergency expenses. It also reduces the need to either draw from high-interest debt options such as credit cards, unsecured loans, or undermining your future security by tapping into retirement funds.

An emergency fund should contain enough money to cover between three and six months’ worth of expenses, according to most financial planners. Please understand that you can’t not call your financial institution for an emergency fund account because they do not have them. Instead you as an individual can set up a savings account and earmark or name it as your emergency fund. I personally recommend that you get a high yield interest savings account. (1) (Below will be a link to banks that offer high yield savings accounts)

Three Strategies to Set Up an Emergency Fund

Starting early is key to setting up an emergency fund, because it helps you build up a comfortable cushion against unexpected emergencies later in life. Getting a start on emergency funds is relatively easy. Here are three simple ways to begin saving for one: Sale. Sale. Sale. Many times, there are things around the house that is just holding up space. Things like that dress or pair of pants that you cannot fit. Take them to Plato’s closet or a consignment shop to make some extra money. Get rid of the things you brought on clearance just because it was a good sale. Have a yard or estate sale.

Set aside a comfortable amount from your salary each month. Calculate your living expenses for at least three months and make that your target for an emergency fund. You can then divert a portion of your paycheck perhaps by setting up an electronic withdrawal to that account each month. Once the fund is built up to the level you need you can invest the extra savings for the long term or for other goals, such as the down payment on a mortgage. Remember once you have maxed out your retirement savings, that money could go into an investment account with higher risks and rewards.

When you get your tax refund, save it. The tendency for most of us is to consider a tax refund as “extra” cash, which consumers may be tempted to use for discretionary purchases. Instead of spending the tax refund, save it as a contribution toward your emergency fund. Start small and build up. On my resources page you can find a savings worksheet to help you keep track of what you have save. Or try one of my money saving challenges.

Continue to live a life of purpose with passion and power.

Until next week, R. Nicole

https://clubthrifty.com/best-high-yield-savings-accounts/