Life happens. Appliances break, car tires need replacing, jobs are eliminated, and many other emergencies can pop up when you least expect them. You cannot control when these will arise, but you can be prepared for them. Start to build your rainy-day funds today. This is an important message for all ages from emerging to experienced savers. Noone should be financially caught off guard.
Emergency Fund Basics
An emergency fund doesn’t just happen overnight, but with some steady and consistent planning you should reach your goal. That goal should be accumulating 3-6 months of your living expenses into a separate account or a “rainy day” fund. The best place to hold your rainy-day funds is in a separate bank account with low/no transaction fees, easy to access, and earning some interest. Build your emergency fund so you don’t find yourself borrowing or falling behind on other payments to cover the expense.
Why Is an Emergency Fund Important
Without a slush fund to go to for the surprise expenses, you may find yourself in a pinch in various ways.
- Forced to take early withdrawals from a 401(k) or 403(b) and faced with penalties
- Will have to borrow from a retirement account reducing future growth
- Will be late on important monthly payments like your mortgage which may affect your credit score
- Struggle to pay monthly credit card balances due and are hit with late fees also affects your credit score
- Will have to go without grocery or gas money will be hungry and possibly miss work
- May miss making tuition payments delaying your future education goals.
How to Begin an Emergency Fund
Take a moment to add up all your monthly living expenses – rent or mortgage payment, insurance, utilities, phone, car, gas, and groceries for example. This amount times 3 which will equal 3 months of fixed expenses for you. This is your goal amount to save towards. Then set up a separate bank account or online money market account where you will transfer on a monthly basis a set amount of funds. Maybe you start small with $50 or $100 a month and as bonus or gift money comes in you move it over there too. Try to set it aside and forget about it. For those of you in your mid to later careers take a good look at your budget and reallocate “fun” money into this bucket before spending on discretionary expenses like concerts and sporting events.
It will take a while to build. If your basic monthly living expenses total $3,500 you are looking to accumulate around $10,000 in your rainy-day account. Do not lose hope and keep working at it through the years. Be sure to put it in an account that is earning interest along the way.
Need More Help
Financial advisors can assist you with budgeting and setting your financial goals. We have been guiding individuals and families through financial complexities for over forty years. We work with you to create a foundational plan and guide you in achieving your financial success today and tomorrow. View all of our free resources and checklists for more general information and tips.
If you would like to setup a complimentary discovery meeting, please click the Get Started button on the website or call the office 513-733-1750.
