Although not a sexy topic, an Emergency Fund, nonetheless is a vital piece of the foundation for financial wellness.
Having one in place, knowing that you can cover those nasty suprises life likes to throw our way, is the goal.
It takes some forethought to get a “grade A” Emergency Strategy.
Let’s start with the basics:
Like trying to accumulate $1,000 in a savings account (earning at least 0.75%)
Check Bankrate.com for a list of savings rates available.
At just $83+ a month for 1 year, you can accumulate that $1,000. That should be your bare minimum starting goal. ( You should be rewarded with some belly rubs upon completion )
BUT HEY, let’s not stop there…..
It is recommended that you accumulate 3 to 6 months of living expenses in your Emergcy Fund. When I say “living expenses”, I’m talking about what it costs to run the house, ( rent, electricity, heat, food, dog treats, etc..)
- 3 months of living expenses if you are a two income family
- 6 months of living expenses if you are a one income family
I know it’s a big number, but if you have ever been laid off or injured you know this is a lifesaver !
But what else is an emergency account for?
Those unexpected bills that you can’t pay for out of your paycheck. That otherwise go on your credit card at 20%- No Good Mi’ Amigo. So lets plan for the inevitable.
There’s the disaster mode items:
- The AC dies in the middle of August
- Rover ate a golf ball and needs surgery
- Junior drops your laptop in the toilet
Then there are the LARGE Non-Monthly Expenses
Fo this we can set up a Revolving Savings Fund or Funds. Sounds Fancy..
To cover those quarterly or annual big expenses like:
- Annnual Life Insurance premiums
- Christmas presents
- Kids birthdays
- Car service/Repairs
The idea is to borrow from yourself not the credit card company. You know these expenses are coming! You dread them, but they are coming either way.
The car is always gonna need maintaining, the kids are going to continue to age and St. Nick is always gonna put a dent on your expenses.
Wouldn’t it be nice when the brakes need replacing, you have been socking away money weekly ( $7.5 x 52 weeks=$390)
Most banks allow multiple savings accounts per client for free.
So setup a Christmas fund, Car fund, Birthday fund , etc..
You can have money automatically if shifted every week from the account where your
paycheck is deposited into these savings accounts. Those small contributions really add up for when you need it.
The only way to save is to Automate it.
Saving to these accounts, the money is out of site (your checking account) and out of mind. When you need the dough, take it out and it will continue to be replenished every week until the next big bill.
So set them up, even if its with a tiny amount every week to begin with. You won’t notice the money missing. GO SOX!