Life is unpredictable, and financial stability is a cornerstone of navigating its uncertainties. Enter the concept of an emergency fund – a safety net between you and unexpected financial setbacks.
Having a well-established emergency fund can provide peace of mind and a sense of control, whether it’s a sudden medical expense, a car breakdown, or a job loss.
In this guide, we’ll delve into a collection of invaluable emergency fund tips that go beyond the basics, helping you build a robust financial cushion to weather life’s unexpected storms.
Simple and Savvy Emergency Fund Tips
Let’s explore how a few strategic steps today can safeguard your tomorrow.
You should have an emergency fund stocked full of savings. It’s an essential safety net that will inevitably come in handy when an urgent, unplanned expense comes along.
Before you start building your emergency fund, you should read these simple and savvy tips.
#1. Keep Backup Plans
When you’re first creating your emergency fund, it won’t be a very strong safety net. You won’t have a considerable amount of savings inside of it. You might not be able to handle any urgent expense that crops up.
So, you should set up backup plans for emergency expenses. You’ll want to have these available when you can’t rely on the savings in your fund.
One backup option that you should have available is a credit card. As long as you have enough credit available on the card, and you are capable of paying down the balance through the standard billing cycle, then you can charge an urgent expense to it.
A credit card isn’t your only option. There are plenty of other online borrowing options that you could look into, like applying for a personal line of credit or a fast online loan. You could use the borrowed funds to cover your emergency expense and then focus on repayments later on.
#2. Store It in a Savings Account
Do not keep your emergency savings in the form of cash. You’ll want to keep it in a more secure location. This doesn’t just prevent theft. It will also prevent you from making unnecessary withdrawals.
A savings account will have a limited number of withdrawals and transfers per month, which should keep you from using your funds irresponsibly.
Make sure you open a savings account at a bank that’s insured by the Federal Deposit Insurance Corporation. The FDIC will protect your savings in the worst-case scenario of bank failure. If the bank goes under, your savings will be safe.
#3. Increase the Interest
If you’re impatient for your emergency savings to grow, put them into a savings account with a higher interest rate.
A high-yield savings account comes with a higher interest rate and annual percentage yield (APY) than a basic savings account. You can get a 2-5% APY.
Another option to consider is a Money Market Account. An MMA typically comes with higher interest rates and APYs than basic savings accounts, and they will give you access to debit card transactions and check-writing privileges.
This could help you pay for urgent expenses right away. While it can have a higher interest rate than a high-yield savings account or MMA, using a certificate of deposit (CD) isn’t the best plan for an emergency savings fund.
You’ll have to wait for your CD to mature before you can access the funds inside — this is unlikely to coincide with an emergency. If you decide to make a withdrawal before the CD has reached its maturity date, you will likely pay a penalty.
#4. Automate the Contributions
An emergency fund will never become a substantial safety net if you continue to forget to make regular contributions.
So, you should automate contributions between your checking account and savings account. Using this online banking feature will encourage you to always add to your fund, helping it grow and grow.
The more money that you have sitting in your fund, the more you can rely on it in emergencies.
Use these tips to your advantage. You’ll be ready to handle emergency expenses in no time!