What Is An Emergency Savings Account?

Understanding what an emergency fund is is the first step in the process.
An emergency fund is money set aside for the sole purpose of allowing you to continue living your usual life in the face of unforeseen circumstances.Most of the time, you shouldn’t touch your emergency money; it should just sit there earning a little interest until you need it. When you are laid off from your work. When a piece of equipment fails. When your vehicle requires maintenance.

People who don’t have an emergency fund frequently regard the requirement to save money as a form of punishment — after all, money deposited in a savings account and locked away can’t be used to live, right?

Having an emergency fund, on the other hand, shows that you do have some breathing room.
If your car breaks down, you lose your job, or you need to replace a hot water heater unexpectedly, you don’t have to panic. Rather than scrambling to put those charges on a credit card or begging a friend for money, you may simply pay the bill and be done with it.

Another issue I frequently hear about when it comes to emergency funds is people’s want to spend the money on things that aren’t emergencies. They notice that they’ve amassed several hundred dollars in savings and begin to consider purchasing a flat panel television or taking a vacation – which they do.

If you want to keep a savings account for big purchases, go ahead and do so – you could even form a “splurge fund” if it makes sense for you. It’s critical, though, to leave the emergency fund alone until you require it. Put money in it and don’t peek at the balance until you have a real emergency.

Taking the First Steps with Your Emergency Funds

Set a low initial goal for yourself.

So, what’s the first thing you should do?Many people set a lofty target for their emergency fund straight away, only to discover that achieving it is quite difficult.Eight months’ worth of living expenses is a lofty target that will take years to achieve – and you’ll inevitably become discouraged along the way.

Instead, setting a more reasonable objective is a terrific place to start.Make it your initial objective to have a $250 or $500 emergency fund.That’s a goal you can achieve in a matter of months (or even less if you’re in a solid financial situation), but it’s a sum that can make a significant difference in an emergency.

Then, break down that goal into smaller chunks. You might be able to save $25 per week.If that’s the case, a $250 emergency fund may be built in just ten weeks, so make that your overall aim.Perhaps you can save $40 per week, bringing you closer to your $500 target in three months.

My advise is to not set your savings goals too high at first, either in terms of the amount you can save each week or in terms of the total amount you can save.It should test you a little, but not to the point of becoming unattainable.

Locate Your Breathing Space

“That’s fantastic,” you say, “but how am I going to come up with $25 per week?”
“Right now, I’m just scraping by.”

That’s a common emotion among people who are just starting to improve their financial circumstances.
There are numerous methods to earn extra cash during the month.

How to Begin Building Your Emergency Fund

Request a lower interest rate on your credit cards.

If you have a credit card balance, lowering your interest rate will save you money on a monthly basis.
Simply turn over your credit card, phone the number on the back, request to speak with a supervisor, and ask for the rate to be lowered.Indicate if you’re thinking about transferring your balance from the card.In such case, you might want to consider transferring the balance to a card that doesn’t charge interest on balance transfers, which can help you pay off the debt faster.

Look for better auto and homeowner’s insurance by shopping around.

For starters, look into Progressive, Geico, American Family, State Farm, and AIG.
Simply go to their websites, request quotes, and make the move.

Install and program a programmable thermostat.

It’s actually quite simple — it only takes about thirty minutes and will save you 20 to 30% on your cooling and heating bills.Set the thermostat so that the air conditioner and/or furnace don’t run when you’re asleep or at work, so that energy isn’t squandered when no one is home or awake to enjoy it.

When going grocery shopping, make a list.

Ten minutes of preparing ahead of time will save you at least ten minutes in the shop, as well as help you stay focused on the items you really need, lowering your grocery bill by removing extraneous items from the cart.

One less indulgence every month.

Instead of treating yourself to a costly supper once a month, make it a home-cooked meal.
Even if you create something very fancy in your own kitchen, you’ll save a lot of money.

Make a carpool arrangement.

Start carpooling with someone who lives close by and works in the same place as you.
Even if you can just do it a few days a week, you’ll save money on your commute and find it far more difficult to succumb to impulsive purchases.

Take advantage of public transit.

Even better, make it a habit to use public transportation for your daily commute.
Most major cities offer surprisingly good public transportation alternatives, which are significantly less expensive (and not all that much slower) than driving yourself.

Get on your bicycle.

Do you want to become in better shape?
Do you only reside a mile or two from your place of business?
That’s an excellent opportunity to acquire a bike and start riding it to work instead of squandering money on petrol and automobile upkeep.

Reduce monthly bills that aren’t essential.

Do you have a Netflix subscription but rarely use it?
Cut it out!Do you have premium cable channels that you don’t use?
Trim them down!

Snowflake

When people get a large sum of money unexpectedly, they frequently spend it without hesitation.
They decide not to stop for coffee and instead spend the money on something else, such as takeout.
Instead of squandering your “found money,” put part or all of it into your emergency fund right now.
If you have internet banking, it’s simple to transfer money from your checking account to your savings account.

The important thing is to really save this money.Rather than squandering the money on something else, put it towards your emergency fund.If you find that you’re saving more than $50 each week using these strategies, add to your emergency fund or raise your retirement savings.

Make It Autonomous

So you’ve cut your spending by $50 each week, but now you’ve got some extra income, and it’s tempting to spend it on something other than an emergency fund.
You’re enticed…

But you don’t have to succumb to temptation.Instead, you can set up an automatic savings plan to transfer that money from your checking account to a savings account designated for an emergency fund.

If you haven’t done, I recommend opening an online savings account for your emergency fund with a bank other than the one with which you regularly conduct business.This allows you to not only shop around for a bank with good service and good savings account rates, but it also forces you to put the money in a less accessible location.You can’t just go to an ATM or a teller window and withdraw cash – you have to go to your computer, arrange a transfer, and wait a day or two to collect the money, which gives you plenty of time to think about what you’re doing and avoid being taken in by impulse.

So open an online savings account with good service and a good interest rate (here’s a list of the best savings accounts and best IRA accounts to get you started), set up an automatic plan at that bank to sweep $50 (or whatever you can save) into that savings account every week, and then forget about it.
This should be simple to accomplish because you’ve already saved that money by tightening your belt a little.

Set Reasonable Goals for Yourself Along the Way

You’ll reach that first milestone in a few months, and it’ll feel great.That account will have enough money in it to begin collecting interest on its own, giving you a sense of control over the situation.

Now is the moment to keep moving forward.Make a new goal: a $1,000 emergency fund. Maintain your automatic savings strategy.

Once you’ve accomplished that, set your sights on a single month’s worth of living expenses.
Then it’ll be two months.Then there are three. And don’t forget to keep an eye on your emergency fund.

Obviously, if you have an emergency, you should use that fund. Don’t use your credit card to pay for car repairs. While you’re looking for work, don’t start living on plastic.Instead, continue to live a financially secure life as a result of your foresight.

You might discover that this is a lot of fun, and you’ll start looking for other methods to save as a result.
Just keep creating objectives for yourself and a little pushing yourself to get there.

Your life will be less affected by these kind of situations before you realize it, and you’ll sleep a lot better at night knowing it.