Be prepared for financial emergencies and unplanned expenses with ClearOne Advantage’s tips for emergency funds.
Your emergency fund should be a top priority because it may be able to keep you out of debt or prevent you from going deeper into debt. It can be used for any unplanned expense such as car repair, medical bills, or if you lose all or part of your income.
Depending on your financial situation, you may need to learn how to better manage your money so that you are able to contribute to your emergency fund. Keep in mind that even contributing a small amount of money to your fund is a great start to healthy finances.
If you are just getting started building your emergency fund, this could be a great first step to financial health. Keep these tips in mind as you start to build your beginner emergency fund:
How much emergency fund should I have?
How much you should have in your emergency fund differs for each person and his or her financial situation. While it may be beneficial to have enough money to cover three to six months’ worth of bills, you may need to start off smaller.
As a beginner, you may want to start by considering the unexpected bills you have encountered in the past and choose a goal that could cover them. This is likely to be a smaller amount than three to six months of bills and therefore an easier goal to reach. If you haven’t encountered any unexpected bills, start with a goal that is easy for you to obtain.
Keep updating your goal for the amount you have in your emergency fund as your financial situation changes, or if you reach your previous goal.
Where to keep an emergency fund?
Where you keep your emergency fund is up to you. You can choose to keep it in cash form, on a prepaid card or in a savings account, depending on what you think is best for you. Keep in mind that keeping your emergency fund in a bank or credit union savings account could allow your money to grow, even in a month you cannot afford to contribute. Your money may also be less likely to be lost or stolen in a savings account.
Regardless of where you keep your emergency fund, it should be liquid and easily accessible in an emergency. This means investments are not a good option for your funds because you can’t access the money on a moment’s notice. Just don’t make it too easy to access or you may be tempted to take from the account when it isn’t an emergency.
No matter where you keep your emergency fund, it is beneficial to keep it separate from your everyday money to prevent you from spending it in non-emergency situations. It’s also easier to keep track of how much you save for your emergency fund if you have it in a separate place.
How to start an emergency fund?
Once you figure out the amount of money you should have in your emergency fund, you should come up with a plan to reach your goal through monthly contributions. Make it part of your monthly budget. Consistency ensures that your fund will continue to grow each month.
If you have consistent income, you may even consider making your monthly contributions automatic so that you don’t forget. Some banks offer the option of automatic transfers that you can schedule each month. This way, you can be sure you contribute the same amount each month.
If you don’t have consistent income, it may be tricky to contribute the same amount of money to your emergency fund each month. Sticking to a schedule could help build your fund, even if you are not able to contribute a significant amount every month.
You also may consider contributing any large amounts of cash you receive to your fund, such as a tax refund or a bonus at work. This will help make building an emergency fund easier, especially if you are not able to contribute a significant amount each month.
If your emergency fund is not enough to keep you out of debt, ClearOne Advantage can help. Contact one of our Certified Debt Specialists at 866-481-1597 to discuss your best debt relief options and get a free savings estimate today.
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