Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, giving yourself your best, “You can make it!” pep talk, you see smoke seeping out from under your hood.
Bad things happen to the best of us, and instead of conveniently spacing themselves out, they almost always come in waves. The important thing is to have a financial life preserver, in the form of an emergency cash fund, at the ready.
Although many people agree that an emergency fund is an important resource, they’re not sure how much to save or where to keep the money. Others wonder how they can find any extra cash to sock away. One survey found that 26% of Americans don’t have any emergency savings at all.¹
Here’s a look at how Americans are doing when it comes to emergency savings:
1. Bankrate.com, June 23, 2014
The ideal amount for your emergency fund depends on your financial situation and lifestyle, there is no “one-size-fits-all answer to how much you should have. A good rule of thumb is at least 3 months of expenses. For example, if your budget each month is $3,000, then you should set aside $9,000 for your fund. If this amount of saving seems an unreasonable goal, don’t despair. Start with a more modest target, such as saving $1,000. My advice is to set up an automatic amount each month to be transferred from your checking account into your savings. This will build your savings a bit at a time. You may want to consider paying off any credit card debt before you begin saving. Keep your emergency money separate from your checking account so that it’s harder to dip into.
An emergency fund should be easily accessible, which is why the best option to put it is in a traditional bank savings accounts. This option allows the funds to be liquid and available when needed.
The only thing you can know about unexpected expenses is that they’re coming — for everyone. But having an emergency fund may help alleviate the stress and worry associated with a financial crisis. If your emergency savings are not where they should be, consider taking steps today to create a cushion for the future.
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