Many family households barely make it week to week financially.
So, when the topic of emergency funds come up, many roll their eyes and think,
“I’m barely making it. How am I supposed to save up an emergency fund?”
Others might figure that’s what their credit cards are for. They’re just not interested in socking money away into their savings account.
This is unfortunate because having cash on hand for emergencies can offer you peace of mind, which we’d all like more of. The less stress we have to contend with, the better.
According to Bankrate, 60 percent of Americans don’t have $1,000 saved in case of an emergency.
This is disheartening. It’s not that people don’t want to save up a small reservoir of money, because they do. It’s just that oftentimes when it comes to finances, a majority of people lack the discipline and wisdom needed in order to stay out of debt and sock money away each time payday rolls around.
The obvious reason for having an emergency fund is that you’ll have peace of mind when it comes to taking care of unexpected things.
For example, the car breaking down, the refrigerator going out, the dog needing a vet visit, or a sick relative needs you to travel to help them. In addition, having an emergency fund helps you feel empowered.
Instead of money controlling you, you are controlling your money and your cash flow. Too many people spend, spend, and spend some more as if saving is outdated or out of style. But having peace of mind beats any item that you can buy.
Starting your emergency fund helps you begin to get clear about your financial future. Once you save up your first $1,000 emergency fund, you may feel so good that you’ll want to set another savings goal for yourself. Then, when you reach that goal, you set another one, and so on.
Now that you know why you want to start saving for an emergency fund, it’s time to decide just how much money you should put in it. Opinions vary on this by experts and perhaps your spouse or partner. Questions arise like:
Financial expert Dave Ramsey states that you should begin by paying off your debt and then saving at least $1,000 in your emergency fund.
Then, you can begin saving enough money to cover three to six months living expenses.
The actual amount of money you want to put into your emergency fund is up to you, but most financial experts assert that you should put between 3-5% of your gross income in.
If you owe consumer debt, like credit cards, pay off the amount if that’s something you can do in a short time. If it’s quite large, save up $1,000 to $2,000 for your emergency fund and then begin paying more than the minimum amount toward your debt.
And, stop buying things you don’t need. Once you get that debt taken care of, then resume saving money for emergencies.
The amount you decide on can vary according to different factors too. For example, if you freelance, you may want to put more money in the emergency fund in case work gets extremely slow for a long period of time. It really boils down to what you’re comfortable with and what type of budget you’re on.
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Let’s take a look at Donna.
She’s a chef, working for a small restaurant and has a goal of $3,000 for her emergency fund. She’s 28 years old, a single mom with one daughter and is on a tight budget. She has one credit card that she owes $1,200 on and pays rent for her apartment.
She decided to start saving for an emergency fund because she’s tired of being broke and worried. For now, Julie is paying the minimum amount on her credit card balance and putting whatever money’s left after paying bills toward her emergency fund. She’s at $1,800 now and she’s been doing this for six months.
She’s really buckled down and stayed within her monthly budget, cutting out all unnecessary spending. Being able to save more than half of her goal makes her feel great and proud of herself. She’s not as worried anymore and believes she is on the right track with her financial future.
Once she gets to $3,000, she is going to get her credit card paid off as soon as possible and then continue on toward a $10,000 goal.
She is excited about her financial future.
There’s no question that having an emergency fund will be quite an asset for you.
It certainly can be helpful if an unfortunate situation occurs and helps keep you focused when it comes to your finances. If you feel you need expert advice or some accountability, you can always consult a financial expert or coach.
Sometimes all you need is someone to come alongside you and give you the knowledge and encouragement in order to get the ball rolling. There are also a ton of articles that offer solid financial advice.
Once you consistently take control of your finances, you’ll find that it becomes a habit and your financial future will be brighter because of it.
Take some time and think about how much money you’re going to save up for your emergency fund and the route you’ll take to accomplish that goal, because the reality is that you can.
August 8, 2022
August 6, 2022