Life is filled with unplanned expenses that stem from unpredictable circumstances. This impacts financial stability, which is why it’s crucial to have an emergency savings account plan in place to provide cash during stressful times.
By Lezan Tahir, Gate City Bank Senior Customer Service & Sales Supervisor
An emergency savings account is a separate cash fund, a rainy-day safety net that offsets expenses from an unforeseen financial crisis. This may include injury, sickness, job loss, repair or something similar.
We’ve compiled six simple tips to prepare an emergency fund for the unknown, and access greater financial security and peace of mind in the process.
Setting a savings goal is important because it will help you stay motivated. How much emergency money you decide to put away will largely depend on your income, average monthly costs and outstanding debt.
Consider starting small by keeping $1,000 in your emergency savings account. Next, depending on your preferences, save for an amount equal to three months’ worth of expenses. From there, you could potentially work up to six months or higher. The idea is to make saving a habit.
While building emergency savings may seem intimidating at first, it becomes more manageable when you approach it in small increments on a regular basis, such as weekly, every other week or once a month. Ultimately, the amount you decide to save should allow you to still live comfortably. Focus on sticking to your plan and keeping your goals realistic and attainable.
Once you know how much money you would like to save, consider setting up your emergency savings fund with a bank that provides excellent account options, specifically ones that are safe, yield interest and can be easily accessed without taxes or penalties.
Additionally, keep an eye out for savings accounts that you can connect to your checking account, which can simplify fund transfers.
During certain times of the year, you may receive funds that are outside of your budget, such as tax refunds, debit card rewards or rebates. Rather than spending this money, consider saving it as part of your emergency fund. It could make a huge difference down the line.
You can also consider taking on extra hours at work, netting a part-time job or starting a side hustle.
By utilizing an automatic savings option with your bank, you can keep your progress consistent and have one less thing to think about. Seamlessly round up transactions to save or set up recurring transfers so money is automatically moved from one account to another on a regular basis.
The idea is to make technology work for you. You may even have the opportunity to split your paycheck, so it goes into both your checking and emergency savings account. Just adjust contributions as needed.
Make sure you keep tabs on how much you’re saving. It helps to choose a bank that sends out digital notifications regarding your account balance and activity. Not only does monitoring your progress help you celebrate successes, it keeps your eye on the ultimate goal. Consider setting up notifications or calendar reminders to check your balance.
It goes without saying, but remember that this money is only for emergencies, so try to avoid the temptation to put it toward that spontaneous vacation or new boat. When you do have to pull from your emergency savings account, do your best to replenish it to the original amount as soon as possible.
Start saving today. Starting an emergency savings account is a key part of achieving financial stability. By setting guidelines on what qualifies as an emergency or unplanned expense, as well as having savings plan in place, you’ll be on the right path.