When preparing for your financial future, there is a great deal to consider. It’s likely that much of your money goes toward the daily cost of living, paying off loans or even saving for a down payment.
In addition to typical expenses, you should be saving money each month to help you prepare for the unexpected expenses of life. If you have medical expenses or a car repair, the emergency fund can be a buffer, preventing you from falling behind on other payments because of one big bill.
Your Emergency Fund
Ideally, you should have 3-6 months worth of expenses in your emergency fund. This will leave you in a financially secure position if you are to lose your job. Even if such a large number isn’t feasible for you, having a couple thousand dollars in your emergency fund is always a safe bet.
The most important part of an emergency fund is remembering that it is only for emergencies. It might be tempting to spend the money on a vacation or shopping spree, but that could leave you unprepared for the future.
Many people don’t have enough disposable income to significantly contribute to a savings account. If you’re living paycheck to paycheck, the task could seem especially daunting. Money doesn’t appear overnight, but there are steps you can take everyday to improve your financial security.
For example, you could cut small expenses throughout the week, and put that money into an account. This is one common tactic used by people who have quit smoking. They will take the money they would have spent on cigarettes, and save it instead. Another option is cutting back on things you don’t need. For example, subscribing to Netflix instead of paying for cable, or buying generic brands.
If you’re paying credit card debt or other loans, that can stand in the way of your savings. The longer you’re making payments, the more interest you pay in the long run. If you can find a good balance transfer card with 0% APR for 24 months, you might be able to pay your debt more quickly.
Keeping Your Emergency Fund
There are various avenues for securing your emergency fund once you’ve started saving. They money should be easily accessible and safe. This is one reason some professionals won’t recommend that you invest your emergency fund into the stock market. However, for people with more than one income who are financially secure, it could be a viable option.
The most common practice is keeping the money in a secure savings account with a credit union.