How to Save for an Emergency
Emergencies are unpredictable and can disrupt one’s financial goals. But with a few expert tips on how to prepare, you can avoid fiscal setbacks.
Creating a safety net
It’s essential to have a savings account that contains a minimum of three months’ worth of living expenses, depending on your financial responsibilities. The exact amount you’ll need to save relies on your current bills and lifestyle. Unexpected job loss or costly medical bills are examples of emergencies you might want to save for ahead of time.
Create a budget spreadsheet and include all your monthly bills, entertainment expenses, and miscellaneous costs. Next, decide on the exact amount you’d like to have set aside in your savings account. Don’t be overwhelmed by the total. Breaking up this dollar amount into smaller, attainable increments is a solid starting point.
Where to save your emergency fund
Saving a small amount of every paycheck is a great place to start. Securing your funds in an easily accessible account will ensure you can retrieve your money when you need it most. For example, when you open a checking account with your local bank, opt-in for a savings account as well. You can easily transfer money from your checking account to your savings account with a few clicks.
You can also adjust your direct deposit with your employer to deposit a portion of your pay into both your savings and checking account each pay period.
You’ll want to avoid saving your emergency funds in a retirement plan such as an IRA or 401k. These have expensive withdrawal fees and can take time to access.
When to use your emergency funds
The timing is entirely up to the individual. Still, a good rule is to use your savings account for unplanned emergencies such as the loss of income, medical bills, and natural disasters like hurricanes. Whenever you withdraw funds, it’s crucial to have a replenishment plan in place to prepare for the next challenge in your life.
If you need assistance opening a savings account, we’re here to help. The minimum balance required to create a savings account at Yoakum National Bank is as low as $100. Contact us today to learn more.