Saving money can be really difficult for some people, but it’s something you must do so that you can stay in good standing financially. Bad things can happen to good people and sometimes those things can cost you a lot of money. That’s why everyone should have an emergency fund. An emergency fund is a stash of money set aside to cover the financial surprises life throws your way.
Here are some of the top emergencies people face:
- Job loss.
- Medical or dental emergency.
- Unexpected home repairs.
- Car troubles.
- Unplanned travel expenses.
- Legal issues.
2 major benefits of having emergency money.
- It helps keep your stress level down.
It’s no surprise that when life presents an emergency, it threatens your financial well-being and causes stress. If you’re living without a safety net, you’re living on the “financial” edge—hoping to get by without running into a crisis. Being prepared with an emergency fund gives you confidence that you can tackle any of life’s unexpected events without adding money worries to your list.
- It keeps you from making bad financial decisions.
There may be other ways you can quickly access cash, like borrowing, but at what cost? Interest, fees, and penalties are just some of the drawbacks. If you already have an emergency fund, you won’t need to whip out your credit card or get a loan every time disaster strikes. More often than not, using credit for a financial emergency only leads to another financial emergency (ie. DEBT!).
So how much money do you need in your emergency fund? Well, that depends on how much money you spend on your lifestyle. Generally speaking, you need to have enough money in your emergency fund to cover three to six months of your expenses. I know it sounds like a lot but it is possible.
How to save money.
- Put it in a separate account!
No matter how smart or disciplined you think you are, you WILL use your “savings” if you keep it in the same account as your checking. I know it sounds dumb but some people really think they can mentally keep track of their savings even if it’s not in a separate account. Newsflash: YOU CAN’T! Open up a savings account and keep the money separate from your spending money. Some would even say, open your savings account at a different bank than your checking or keep your savings in an online bank. Utilizing these methods would make it harder for you to immediately get to your money, so you’ll be less likely to use your savings on something frivolous like a shopping spree.
- Do it automatically!
If you never see the money in your account, you won’t miss it. I have my money automatically taken out of my checking account and put into my savings account when I get paid. You can also have your employer set up your direct deposit so that they automatically put a portion of your paycheck into a savings account for you.
- Don’t try to save too much at once!
I know that we need to build up our emergency funds as soon as possible, but it doesn’t make any sense to put a lump sum of money into savings only to have to transfer it out soon after because you need that money for bills. Start small if you have to. Save in increments. Do whatever works best for you so that you don’t get into the habit of reaching back into your savings account to pull out money.
- Pay yourself back!
If you do find yourself using any amount of your emergency fund, your first priority should be paying yourself back. You need to keep your emergency fund abundant so that you are prepared when the next emergency pops up. The whole point of your emergency fund is lost when you take money out of the account and fail to put it back.