Jim is a hardworking family man. He manages to earn enough to keep the bills paid, and maybe have a little fun on the weekends. For the most part, Jim and his family are doing pretty well. Yes, they sometimes have to live tight in between paychecks, but so do millions of other people. He keeps plugging away and providing for his family. One day in early December – just before he was going to go out with his wife to buy Christmas presents for the kids – there is an emergency in the house. A busted water line is creating havoc. Jim is looking at a hefty repair bill, and right on the verge of the holiday shopping season. The worst part is that Jim doesn’t have an emergency savings fund started. He is going to have to scramble in order to get the water line fixed, and still be able to shop for the kids.
This may sound like a bad situation, and it really is. Unfortunately, our fictional friend Jim is not all the different than the majority of Americans. Studies show that nearly 2/3 or American households do not have enough emergency cash set aside to deal with an emergency expense that would cost more than $500. That’s right, people are living on the cusp of bad things happening all the time, and most don’t have the money to deal with these expenses. If you don’t, it is high time to get started. Here are the steps you should follow to start and grow your emergency savings fund.
Decide How Much You Need to Save
No action in life worth taking is worth taking without a plan. You need to decide how much money you should have in your emergency savings fund. Old pros at the saving game sometimes have up to one year’s worth of their take home salary saved up. Others have up to three months’ worth of their monthly expenditures (mortgage, car payment, groceries, etc…) in their funds. These may seem like lofty goals. In the beginning, you should strive to at least have a month’s worth of your expenditures covered via your emergency fund. That way if the worst were to happen, and you lost your job, you would have at least a little bit of wiggle room to cover things while you get yourself sorted out. Calculate your average monthly household expenses and make that your goal.
Check Your Budget to See How Much You Can Contribute Each Month
Most people have some expenses in their budgets that they can cut back on or eliminate in order to start saving money. Maybe it is the expensive coffee, cigarettes or even cable TV bill that you can live without every month. Find these little expenses, and begin to cut back on them. Take every penny that you’d normally pay toward these expenses and add the cash to your savings. It takes a bit of work at first, but once you get used to doing this, you’ll find it easy to add money to your savings as a part of your routine.
Avoid the temptation to use your emergency fund as a fun money fund. If you must, start a separate, smaller savings account for non-emergency spending. Remember, though, that you want to get money for serious emergencies in the future, so stay consistent with socking money away, and avoid making impulse purchases.
Ideally, your emergency fund should be easy to get to in times of need. However, you can – and should – still seek to earn interest on the money. Check into a money market account that provides a debit card. These accounts typically earn more interest than regular savings accounts, and you can get ready access to your money during emergency situations. Before you know it, you’ll reach your first emergency savings account goal, and then you can move on to adding even more to it as time goes by.