With your monthly needs and wants, putting away any extra cash can feel like an immense effort. That being said, you should always allocate a certain percentage of your paycheck to an emergency fund.
Here’s Why:
You never know when an emergency will arise. It may be something that you choose not to think about, because who wants to think about bad possibilities? But that doesn’t mean that you shouldn’t be prepared for those unforeseen occurrences.
Emergency situations can include:
- Car repairs
- Medical emergencies
- Natural disasters
- House repairs
- Job loss or the inability to work
Having the ability to support yourself during any of these situations will make you extremely grateful that you saved in advance.
How Much?
You should try to save three to six months’ worth of your income into your emergency fund. This amount will support you if you lose your job and need support while seeking one, or be enough for a payment of an unforeseen medical emergency.
Where Do I keep It?
Keep your emergency funds somewhere safe, but also somewhere where they are still liquid assets. So under the mattress is not a viable option. The best solutions would be a money market account or a no-penalty CD. With both of these options your funds will be safe and it will be out of a savings or checking account, so you will not be tempted to spend it.
Strategies to Build Your Emergency Fund
It’s not reasonable, and probably not possible, to expect to save your whole paycheck for an emergency fund for 3-6 months in a row. Instead use strategies to gradually build it so you are not breaking your budget in order to meet the expectation.
Here are some simple strategies to use:
- Allocate a certain amount to be put away each month.
- Put any extra cash that comes your way into emergency savings.
- Rebuild your budget to fit saving for your emergency fund into a monthly bucket.
- Collect from your coin jar and put any extra change into your emergency fund.
- Cut down on your spending to free up extra money for a “just-in-case” scenario.
These are all viable options that won’t strain your paycheck. So, there aren’t any excuses to not start saving up that emergency fund. Get started today!
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