You have a budget for everyday expenses, like groceries and bill payments. You know, more or less, where your money goes every month. But what about the unexpected expenses, like car repairs or medical bills? Without an adequate emergency fund, these occurrences can blow your family budget. Financial experts like Suze Orman and Dave Ramsey of The Total Money Makeover recommend putting an emergency fund near the top of your money to-do list. Dave Ramsey recommends starting your plan to build wealth with a $1,000 emergency fund, before you even begin paying down your debt. Suze Orman recommends building an emergency fund that will cover eight months of household expenses.
No matter whose guidelines you follow, an emergency fund will help keep the pressure off when the unexpected occurs. A small emergency fund, as little as $1,000 kept in a high-interest savings account or money market account, can cover expenses like an insurance deductible or a car repair. This cushion will prevent you from putting off needed repairs – which can end up costing you more in the long run – or from using your credit card to pay a bill. With a larger emergency fund, up to the eight months Orman recommends, you can replace lost income and pay household bills in the event that you lose your job or find that your hours are reduced. Having enough cash on hand to pay the bills for a few months will let you focus your energy on finding a new job instead of worrying about how you’re going to buy this week’s groceries.
Many people resort to charging surprise expenses on credit cards. If the bill doesn’t fit in your monthly budget, chances are the credit card payment won’t either and you’ll end up stuck in the cycle of charging monthly expenses while you slowly pay off the credit card bill at an uncomfortable interest rate. This can put a damper on your savings and investment plans.
If you don’t have an emergency fund, it’s easy to start one by putting aside a little bit of money in an online savings account each week. Make the money less accessible by choosing an account that is not linked to a debit card. If you already have a savings account, consider starting a separate one for your emergency fund so it doesn’t get mixed up with your Christmas and new car savings. Make sure the money is accessible in an emergency, but inconvenient to get to on a regular basis. Choose a savings or money market account that will let you withdraw the money without penalty, instead of an investment account or CD (certificate of deposit) that will be difficult or expensive to access in an emergency.
An important part of the emergency fund process is understanding what is a true emergency, and saving the money for those instances. (Hint: gifts are not emergencies, even if they are for people you love very much.) Don’t get discouraged if your emergency fund grows slowly. You are building a responsible money habit that will serve you well for the rest of your life. Consider the process of building your emergency fund part of your financial journey and make a game of it by finding new ways to save a few dollars each week to add to the fund. Before you know it, you will be ready to tackle your next financial goal!
You have a budget for everyday expenses, like groceries and bill payments. You know, more or less, where your money goes every month. But what about the unexpected expenses, like car repairs or medical bills? Without an adequate emergency fund, these occurrences can blow your family budget.
Financial experts like Suze Orman and Dave Ramsey of The Total Money Makeover recommend putting an emergency fund near the top of your money to-do list. Dave Ramsey recommends starting your plan to build wealth with a $1,000 emergency fund, before you even begin paying down your debt. Suze Orman recommends building an emergency fund that will cover eight months of expenses.
No matter whose guidelines you follow, an emergency fund will help keep the pressure off when you have unexpected expenses. A small emergency fund, as little as $1,000 kept in a high-interest savings account or a money market account, can cover expenses like an insurance deductible or a car repair. This will prevent you from putting off needed repairs – which can end up costing you more in the long run – or from using your credit card to pay an unexpected bill.
With a larger emergency fund, up to the eight months Orman recommends, you can replace lost income and pay household bills in the event that you lose your job or find that your hours are reduced. Having enough cash on hand to pay the bills for a few months will let you focus your energy on finding a new job instead of worrying about how you’re going to buy this week’s groceries.
Many people resort to charging surprise expenses on credit cards. If the bill doesn’t fit in your monthly budget, chances are the credit card payment won’t either and you’ll end up stuck in the cycle of charging monthly expenses while you slowly pay off the credit card bill.
If you don’t have an emergency fund, it’s easy to start one by putting aside a little bit of money in an online savings account each week. Make the money less accessible by choosing an account that is not linked to a debit card. If you already have a savings account, consider starting a separate one for your emergency fund so it doesn’t get mixed up with your Christmas and new car savings.
Make sure the money is accessible in an emergency, but inconvenient to get to on a regular basis. Choose a savings or money market account that will let you withdraw the money without penalty, instead of an investment account or CD (certificate of deposit) that will be difficult or expensive to access in an emergency.
Stick with it and use the money only for a true emergency. (Hint: gifts are not emergencies, even if they are for people you love very much.) Don’t get discouraged if your emergency fund grows slowly. You are building a responsible money habit that will serve you well for the rest of your life. Consider building your emergency fund part of your financial journey and make a game of it by finding new ways to save a few dollars each week to add to the fund.