Emergencies happen and they can blindside anyone. Having an emergency fund can help. Emergency funds can help when things such as unemployment, car issues, unexpected medical bills, or more happen. Having this kind of money set aside can help prevent having to pay with credit or borrow money.
The ideal first milestone to save towards is $1,000. Putting aside even $5 each paycheck can help you head in the right direction. The ultimate goal is to have three to six months of living expenses saved up. If your usual monthly expenses are $1,500 that would mean having a goal of a minimum of $4,500 saved up.
Keep your emergency fund in a high-yielding savings account. You may choose your usual bank or find another bank or credit union that is insured by the FDIC or NCUSIF. It is important to make sure your savings account has this insurance in case something happens at the bank so that your money will be protected. You can compare banks on sites such as Nerdwallet or Bankrate.
In your monthly budget allow for some amount to be put aside for your emergency fund. This would be part of that 20% Savings/Debt section as discussed in Lesson 1. Make it manageable for your individual situation. Everyone’s budget is different. If $1,000 seems unattainable to start with then start small, maybe $100 or $500 then build from there.
You can set up automatic savings deposit transfers when you get your paycheck. This can help if you do better with an “out of sight out of mind” mindset. If you receive an unexpected bonus it could also be put aside into your emergency fund to help build it faster. Some people choose to pursue a “side hustle” to help them build an emergency fund. This would be a personal choice and may greatly depend on not only your personality, your situation, but also other far-reaching goals.
Once you reach your first emergency fund goal, keep going. Even if you have six months of expenses saved it is a good idea to keep saving. As Covid-19 and a pandemic have shown us we never know what the future holds. All we can do is prepare the best we can.