Author: Daisy Smith
An emergency fund is a financial safety net for emergencies such as medical bills, job loss, and school expenses. Not having an emergency fund can be dangerous. You may lose your home or need funds for an urgent matter that won’t wait. In an extreme situation, not having funds can lead to eviction, foreclosure, or even bankruptcy.
Here are some steps that help build emergency funds and ensure it is protected.
Step 1: Determine How Much you Need.
The minimum amount you should have in an emergency fund is three months’ worth of living expenses, according to the Federal Deposit Insurance Corporation (FDIC). That’s roughly $1,000 to $2,000.
Step 2: Do not Save too Much
To be more precise, don’t put too much money into your emergency fund. An emergency fund is, by definition, a source of immediate cash. That implies that you probably keep money in a low-yield investment like a savings account that pays a pitiful interest. You should cease making contributions to the bank account once you’ve accomplished your main objective just for that reason.
Start making deposits into an account where they can begin to generate income on their own, ideally your retirement accounts where time will allow them to produce the most.
Step 3: Make sure your Emergency Fund is Protected
Find out if you’re insured against a loss that could happen to your primary bank account. According to the FDIC, you can get back up to $250,000 in certified funds if your financial institution is forced to close down.
Step 4: Decide How you will Access your Fund
You may be able to access money from your emergency fund account immediately, or you may have to wait a while. Accessing money quickly is essential because you may need cash in an emergency. You can also set up an automatic transfer order to fund your investment, or savings account every month.
Step 5: Save your Money Automatically.
Create a separate account specifically for your emergency fund, and have your company or bank automatically deposit the amount you chose to deposit.
Use a savings or other account that is difficult for you to access, as opposed to a checking account.
Also, avoid constantly checking your account balance because this will make growth appear slower and smaller. Put it out off your mind and let time pass.
Step 6: Finalize your Details
Keep track of how much money you’ve saved in your emergency fund account. When you’re ready to use it, check the account against the balance in your checking account. Also, check if you have enough money to cover an emergency.
Having an emergency fund can not be overemphasized. It can save you from a lot of unforeseen circumstances without rigorous planning.
You should start saving early. Even if you only put away $5 per week, you’ll accumulate enough money to cover three months’ expenses. Follow these simple steps, and you’ll never have to worry about running out of cash during an unexpected crisis.