People experience natural disasters, unexpected job losses, and costly medical bills. When someone experiencing a financial emergency has an emergency fund set up, he is more likely to get through the crisis without going into debt.
Emergency Fund Amount
Ideally, people should have three to six months of their living expenses in an emergency fund in case of a crisis. If possible, it should be closer to six months, but any amount of saved money can help when a financial crisis occurs. If a person loses her job, she may need three to six months of income to find a new job, get benefits and receive her first pay check. It will be much less devastating to lose one’s job if there is considerable financial planning ahead of time.
Decide how much money is spent in one’s household on a monthly basis. Include all necessities such as food, rent, bills and clothing. Multiple this amount by six to get the ideal amount in one’s emergency fund. What will take to live if one loses one’s job or has a medical emergency?
Start Saving Money Today
Many people feel like they can’t save money, but if they take a closer inspection of their spending they can find ways to cut spending and save money. Start small if needed by setting aside only ten dollars per week. Instead of eating two lunches out, pack lunch and put that money into savings. After a month, make it fifteen dollars by cutting out one trip to Starbucks during the week. Eventually, a person should cut his unnecessary spending until he has enough money saved in the emergency fund.
It should become a priority to save money on a regular basis. A person can do this by asking herself if every purchase she makes is necessary. If the answer is no, then she should skip that purchase. It doesn’t mean that she can’t have fun and enjoy her life, but she can find cost effective ways of doing it. For example, if a woman goes out to eat with her friends once a week and spends fifty dollars each time, she could suggest having a potluck instead of going out to eat. Each woman could bring a dish or bottle of wine and save at least thirty dollars. Look for obvious and unobvious ways to cut spending.
Where to Store the Emergency Fund
At the beginning, a person should keep the money in a savings account. Usually, a person can open a free savings account with his bank with a certain amount of money such as one hundred dollars. Call the bank and ask about the rates. Once a person has a bigger amount saved up such as one thousand dollars he could start looking into putting it into a money market account or certificate of deposits. When deciding where to keep the money, one should consider how easy he will be able to access it in case of emergency. Remember, this emergency fund needs to be easily reached. Never put the emergency fund money in stocks or mutual funds, because the money could be gone when it’s really needed.
One can set up an emergency fund and stay out of debt by deciding how much he needs to live for six months, starting to save today, and knowing where to store the money.