If you decided to quit your job right now would you be able to cover your living expenses for at least 3-6 months? If your answer is No, It’s time for you to re-evaluate your financial priorities. You should always have a financial backup plan because you never know what life will throw you. It’s better to be prepared than to be irritated and in a panic when something happens that you didn’t expect.
An emergency fund is for when “life” happens, not for when you want to go to the Beyoncé concert or buy those shoes you’ve always wanted. Sorry boo, but Beyoncé is not going to save you when you’re in a financial bind neither will those shoes. Saving for emergencies is something that is funded overtime. The benefit of having one is that it can provide you with a peace of mind because it will be there exactly when you really need it.
Here are five tips to help you get started with your emergency fund
- Treat your emergency fund as an expense just like your other fixed expenses. If you can pay your cell phone bill every month, you should be able to pay yourself.
- To calculate how much you should put in your emergency fund, take your essential living expenses: rent/mortgage, car payment, student loans, food, utilities etc, and multiply it by 3 or 6.
- Your emergency fund should be a separate account from your checking account. By having this out of sight out of mind puts a hard stop on you wanting to take it out for non-emergencies.
- Put it in a high yield APY online savings account. Online savings accounts provide you with more interest on your money than a regular savings account. Institutions such as American Express, Ally, Capital One , Barclays , Rize Money have online savings accounts that are free.
- If you’re not that great at putting money away, you should automate it so that the money goes directly into your savings account.
If it’s a challenge for you financially to even start saving towards the recommended amount, create a starter emergency fund with a $1,000. This fund is not the full amount, but it’s still a financial backup. Once that is funded, continue to up realistic deadlines for yourself until you reach your goals. Even when you reach your goals continue to save and invest. Trust me, it’s the best feeling in the world knowing that you financially can take care of yourself in an event of a “life” emergency.
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