Tips on Starting and Maintaining a Solid Emergency Fund!
Guest post by Alanna Ritchie
More than a quarter of Americans have no money reserved for emergencies, according to a 2013 Bankrate Survey, which means millions of people have nowhere to turn in the event of a medical crisis, car trouble or a flood in the basement.
You can combat debt by budgeting for an emergency.
When you find yourself financially stranded because of unexpected life events, it is overwhelming. And, since it is hard to predict what the future will hold, facing an emergency without any preparation can quickly snowball into unconquerable debt. Setting aside some savings before disaster strikes can keep you in control of your money.
Budget Before the Emergency
Start by setting a smaller goal, like saving $500. While this may not be enough money to cover some emergencies, like a new transmission or surgery, it can build a foundation and help you avoid pulling out the credit card for every unexpected event.
Jumpstart your emergency fund by using a large deposit from your tax return, selling items online or keeping what’s left over from your paycheck after a month of seriously cutting back on spending. Having a base to start from will motivate you to grow this account even more.
Decide on a monthly goal that you can afford and, even if it takes time, make sure to consistently contribute that amount to your emergency fund. You may be tempted to skip a month here and there if your budget is tight, but try to adjust your lifestyle expenses – whether it be a gym membership or Netflix subscription—and make the emergency fund a priority.
Maintain the Emergency Fund
Once you reach your goal, keep going. Maintain the habit of setting aside a portion of your earnings for the future. This will help with emergencies and enable you to build a retirement fund later on.
Experts recommend saving at least 6 months’ worth of living expenses. This may seem like a lot and can take time to build, but you will not regret this when the money cushions a job loss or other financial crunches you may encounter.
After an Emergency
If you deplete your emergency fund in the midst of a crisis, don’t panic; you are using it properly. Sometimes the fund will not cover all your costs, and you will need to rely on other sources. You may need to use credit or sell structured settlement payments to handle major emergencies.
The important thing to remember is to not leave your fund empty after the emergency. Work hard to build savings back up.
Finally, if you are lucky enough not to encounter emergencies for a while, avoid using the money to splurge on a shopping trip or go on a big vacation. You may be able to use a portion of this to pay off debt, but leave the rest untouched, as the future is unknown.
Alanna Ritchie has spent years studying, writing and learning to love the intricacies of the English language. Today, she works as a content writer for Annuity.org, where her primary focus is personal finance.