Create an Emergency Savings Fund Before it’s Too Late
Twenty-six percent of Americans don’t have any money saved in case of an emergency.
Most experts agree that families should have six months of expenses saved in an emergency fund. Why? Here is the scenario, your car breaks down or your pet gets sick and needs intense treatment but you don’t have any money saved to cover the costs. What happens? You take out your credit card and pay the bill or you don’t drive or your pet suffers.
That’s what could happen to the majority of people surveyed by Bankrate.com. The numbers don’t lie:
- Sixty-seven percent have less than six months of expenses saved
- Fifty-percent have less than three months
- Forty-percent have only three months saved – down from 45 percent last year
“Americans continue to show a stunning lack of progress in accumulating sufficient emergency savings,” said Greg McBride, CFA, Bankrate.com’s chief financial analyst. “Even among the highest-income households — those with annual income of $75,000 or above — fewer than half (46 percent) currently have a six-month savings cushion.”
How to save for an emergency fund
“I always say to people who are looking to save money that the first step is building a budget. It’s not any different for emergency funds. Make an entry in your budget for an emergency fund and start accumulating money. Where does the extra money come from? Let’s find out.”
Herman says there are a variety of ways to free up extra money for your fund and maintain it.
- Reduce spending: The most important thing you can do is limit your expenses. You can cut back on any number of things – going to the movies, buying coffee in the morning, going out to lunch at work, buying lottery tickets, the list goes on.
- Direct deposit: Send a specific amount of your paycheck to a savings account that you don’t touch. Even if it’s a small amount, every bit counts.
- Save your change: Get the whole family involved with this, because when an emergency occurs it impacts everyone.
- Sock away a raise: If you get a raise, increase the amount you direct deposit. You never had that money before so it won’t hurt.
- Slash credit card spending: That hefty credit card bill you pay every month plus interest prevents you from saving more. Stop charging.
- Use coupons and sales: Check out online sites for coupons on groceries and other necessities, and you can always clip away too.
Maintain the fund
Herman has seen plenty of people start an emergency fund and then stop saving after only a few months. It’s rarely necessary to stop the fund, but in some cases, as in a job loss it becomes essential. And that, ironically, is the reason to save in the first place – so you have money to cover your costs when something unexpected happens.
“Maintaining your fund should be easy, as long as you have an income and you’re tracking your spending and budget. If you’re not walking around with a bunch of spending money, learn to live with it or find a part-time job that will put a few extra bucks in your pocket. Just keep saving.”
Need help saving more money?
If you would like expert advice on money management or want someone to do a free budget analysis so you can start saving for an emergency fund, don’t hesitate to contact a certified credit counselor at Consolidated Credit.