Eat healthier. Exercise more. Lose weight. Save money. According to Inc.com, those are the top four answers given in a survey of popular New Year’s resolutions. For smart homeowners, part of saving money should include an emergency fund. Even if you already started one, you should review your account to see if you might need to increase your monthly contributions to it. If you haven’t started one yet, there’s no time like the present.
Why Do I Need an Emergency Fund?
You never know when something is going to break down or need to be replaced. Now that you own your Lake Ozark home instead of renting one, you can no longer call a landlord to fix these problems. You’re the one responsible. Also, life sometimes gets in the way. Tires wear down. Cars break down. People lose their jobs. Someone falls critically ill. Serious accidents happen that make working an impossibility for a while. That’s when an emergency fund comes in handy. Having money readily available to cover these expenses helps ease your stress.
How Much Should I Save?
Like snowflakes, no two emergency funds are the same. Experts recommend at least six months of living expenses should be saved in your emergency fund. This needs to cover your monthly mortgage, taxes, insurance (car, house, life, health), utilities, groceries, credit card payments, car payments, etc. Strapped for cash? Start small. Even skipping your $5 a morning latte four days a week and putting that $20 into a savings account adds up to over $1000 in a year. If six months sounds daunting, set a smaller goal of $500. Even a cushion like that helps soften the blow when a large expense you weren’t expecting comes up.
Where Should I Save My Emergency Fund?
In an emergency, you want to have easy access to your money. But you don’t want it so easy that you spend it on a shopping spree instead. So, open up a separate account either in the same bank you currently bank at or at a completely separate one. If you use the same bank, do not link your emergency fund account with your regular checking or savings accounts. That makes it a little harder to access it, reducing the temptation to borrow from it.
How Can I Save for My Emergency Fund?
Most of us don’t happen to have thousands of dollars lying around to set up an emergency fund. We need to save up. First, you’ll need to take an honest look at your monthly expenses. Then, you’ll know what you need to save up. Next, look over your budget to see how much you can set aside each month for your emergency fund. Talk to the payroll department at work to divert a set amount of your paycheck to directly deposit into your emergency fund. Place your extra change in a jar each day. When that jar fills up, deposit it in your emergency fund. Any tax refunds, rebate checks, bonuses, or other “extra” money you receive can be deposited to your emergency fund account rather than your regular checking account. Cut expenses wherever you can and put the money you save into your emergency fund. Even small contributions add up over time. It might even become addictive! Before you know it, you’ve got a nice little emergency fund set up for yourself.