How To Prepare an Emergency Fund
posted on Friday, March 10, 2023 in Financial Tips
As the term suggests, an emergency fund is your financial safety net should you ever need to face any unanticipated expenses. These include sudden medical bills or major car and home repairs that require urgency.
You may wonder how you’re supposed to set up your emergency fund. Fret not. Here are some tips for building one:
Determine the Size of Your Fund
First, you should consider how much money you need to start building your emergency fund. Some people tend to set aside three to six months’ worth of monthly expenses for their funds. However, a good rule of thumb is to base it on your current household financial situation instead. It gives you more room to adjust how much you can put in it regularly.
If you have a stable job or multiple sources of income, you can maintain a smaller fund for a lower financial risk. On the other hand, if your income varies, you may need to aim for a bigger emergency fund instead.
Set Goals and Begin With Smaller Contributions
Once you’ve determined how big your fund should be, you should set a reasonable financial goal and start saving as a habit. You can start with a smaller contribution before gradually increasing over time. Doing so prevents you from stressing your usable daily funds too much and also motivates you to continue the saving habit.
You can also consider where to spend less to build your fund faster. Once you’ve reached your first goal, you can make a new one and work hard to achieve it. Before you know it, you’ll be able to see how much your funds have grown as time goes by.
Keep Your Funds Separate
You need to put your emergency funds in a separate savings account. Doing so prevents you from the temptation to use it for non-emergency reasons. Also, having a different account ensures you get the money when needed.
Many people tend to open a new high-yield savings account for this. It can reward you with a higher interest rate than traditional savings. To make contributions easier, you can choose to automate it by setting a preferred amount to be deposited automatically monthly.
Establishing a dedicated account for your just-in-case moments is a good financial strategy to keep yourself afloat. Should you need help with managing your finances, contact us at Community 1st Credit Union. Talk to one of our C1st representatives today to learn more about our services.