29 Jun Emergency Fund . . . how to get started
By Brenda McCafferty, Sr. Financial Literacy Trainer, ECMC
Emergency fund! Do you have one? We all know we need to have one but there are so many questions? How do I save for emergencies when I’m living from pay check to pay check? CNBC reports 62 percent of Americans can’t cover unexpected expenses. How much do I need? Three months? Six months? Is anything better than nothing? Do I pay down debt or do I start saving. Truthfully you can’t stop the debt without at least a small emergency fund. It’s time to do both but for now focus on starting an emergency fund. We know most experts suggest six months income to be placed in savings while others say six months of expenses but no matter how you interpret the experts it can be a lot of money. When my husband lost his job 14-months ago I was fortunate and had our six months wages in savings but now that it’s well past six months I know the true value and importance of an emergency fund.
Where do you start? Anything is much better than nothing. Absolutely!!! It would be amazing if you began by saving $5 a day but in reality that may be more than you, your students or many working adults can squeeze out of the budget. So, let’s begin with $5 a week. Embrace the simply task and realize it can be as easy as avoiding purchasing a gourmet coffee one morning a week or instead of eating out pack lunch one day a week. Once the commitment has been made for $5 a week it’s time to add in some additional savings. Try adding in simply saving a dime then all dimes. Most people save their change but often find themselves or children robbing the cookie jar. Instead, empty and dry a 2-liter soda bottle. Start with just one dime and then experience the excitement by the time the bottle is filled, you’ve just added $700 additional dollars to your emergency fund.
Now going back to the basics; what are your expenses? It’s most often easier to reduce expenses than to increase income. Take the next simple steps: review cable and phone plans to see if an additional savings can be found. Does anyone really need 200+ television channels with all the other technology around us? Review your auto insurance policies? We become comfortable with our agent or by sending a check in and fail to review the policy and cost verses benefits. There is more and more competition so it’s important to do a comparison at least once a year to make sure you are not over insured and that you are receiving the best price.
Life is complicated enough without having small or large emergencies making life more difficult. It’s time to get prepared. Families save an entire year to go on vacation so take the time to save for emergencies. The key to success, don’t touch it. Know what an emergency really is? It may be as small as a flat tire or as severe as an unexpected illness or family crisis but be committed to not touching your emergency fund. Do not touch it for Christmas shopping, vacation or a back to school shopping spree. Only use it for a true emergency or unplanned expense. Trust me; one day you will be really glad you did.