Last month, we discussed the frightening statistics surrounding emergency funds—namely, that over 75 percent of American households don’t have at least 6-months worth of savings set aside for emergencies such as an extended job loss. In an effort to give you all the information and inspiration you could possibly need to get started in amassing your emergency fund we’re breaking down the ABCs of emergency savings, this month with letters G through M.
- Get interest. Depositing your emergency funds into a savings or money market account at your credit union or in several CDs with varying maturity dates (called a CD ladder) will help you earn interest on the money. By adding interest to your personal contributions you can reach your savings goals even faster while taking some of the psychological burden of urgency off your shoulders.
- Health matters. Staying healthy is a great way to save money. When you’re healthy you spend less on healthcare and prescriptions and you miss less work—especially important if you don’t have paid sick time. Lastly, it helps keep your insurance premiums lower. Pay attention to your health, eat right and exercise in order to help keep your emergency savings on track.
- Insurance helps. Having insurance policies is a great way to ensure that your emergency fund isn’t ransacked after every negative event that life throws at you. Whether you lose possessions in a fire, have a car accident or suffer a temporary disability, a properly designed insurance policy can carry most of the associated costs allowing you to stay away from your savings.
- Jar it. If you’re intimidated by the idea of starting an emergency savings because the goal of 6-months worth of expenses seems unattainable, then start saving by throwing $10 or $20 a week into a jar. This kind of low-pressure commitment will help you see with your own eyes just how quickly your money can add up. Once you’ve saved for a few months, make sure you commit to a savings account or CD so that you can start earning interest.
- Keep focused. Don’t allow yourself to be lax about making deposits once you start accumulating your savings. In order to be successful in reaching your goal and maintaining your emergency savings over your whole working life you must stay focused on retaining the balance. You may even need to increase the balance when your monthly bills increase. Emergency savings funds are dynamic and need consistent effort and attention.
- Learn about money. Having funds available for an emergency is very empowering but you can feel dwarfed by the power and options if you don’t know how to handle them. Learn about finance, how to determine when to spend money and how to save it so that you can fully enjoy the power it gives you.
- Maintain your stuff. The less you spend buying new things, the more you can put into your emergency savings account. Maintain your big and little ticket items like your shoes, cars, and appliances so that you spend less replacing them.
Watch for part three of the ABCs of Emergency Funds next month.