Setting Up an Emergency Fund
One thing you can count on is unexpected expenses or emergencies. At any time, you could experience:
- illness or injury,
- fees for supplies or school-related field trips,
- a car that needs a repair,
- a furnace on the fritz,
- damage to your home because of a storm, or
- the unfortunate sickness or death of a loved one.
When you have savings to pay for these unexpected expenses or emergencies, you can cover them. When people don’t have emergency savings, they often borrow money to cover them. People commonly use:
- Loans from family members or friends
- Credit cards
- Payday or signature loans
- Car title and pawn loans
These debts can take many months or longer to repay, and with car title and pawn loans, people risk losing the car or asset used to secure loan if they do not follow the terms of the loan.
How much should be in your emergency fund? Generally, 3- to 6-months of living expenses is recommended. But, this may seem like a goal that is too big. If you don’t have an emergency savings fund, consider setting a goal to save $500. That amounts to saving $10 per week for a year, or $20 per week for 6 months. This amount can cover a lot of common emergencies or unexpected expenses: a speeding ticket, an urgent care clinic visit, many car repairs, unexpected school-or extracurricular-related expenses, an appliance repair, and so on.
Once you save $500, try saving $1,000.
In order to have the funds when you need them, you need to put them somewhere safe, secure and separate from where you keep your money to pay your day-to-day living expenses. This ensures you have it when you need it.
But when you are working hard and supporting your household, where does the money come from to pay for an emergency or start an emergency fund? Try one of these strategies:
- Get a temporary or part-time job
- Sell unused or unwanted items.
- Re-examine your budget and identify any "spending leaks" that you can plug.
For more information on starting savings for emergencies, visit America Saves.