Build an Emergency Savings Plan
Save money now to be ready for the unexpected.
Just when you think everything is going smoothly – you've got a steady income, you're staying ahead of your bills and you're setting money aside for a new house or car – something happens to throw a wrench in your financial plans. It could be unexpected medical expenses, a major auto repair or a lost job. If you get hit with a financial emergency, where will you get the money you need?
If you don’t already have one, now is the time to build an emergency cash fund, which gives you a safety net to deal with life's unknowns. The rule-of-thumb is to have enough money in a liquid emergency fund to maintain your standard of living for about 12 months.
Important to Save
According to the Bureau of Labor Statistics, as of September 2013, the average length of unemployment was just over nine months. Unemployment benefits help, but only go so far. Without emergency savings, you'll need to live on credit, which could take years to pay back.
When you begin an emergency saving account, think of your monthly bills – housing, utilities, food, etc. Also consider your lifestyle. A family with children and only one income needs to have a larger emergency fund than a family with two incomes and no children or someone who is a ready to retire and has limited expenses.
Remember, this is an emergency saving account. It's there to pay bills – not buy the latest fashions.
The sooner you start an account, the sooner you build your safety net. Get in the habit of making regular deposits.
Once you’ve reached your target goal, keep the money liquid and not tied up in long-term investments.
If you use your emergency cash, rebuild the fund as quickly as possible. You never know when the next crisis will come up.