Americans are told to have what’s sometimes called a “rainy day fund”. Funds that, should something happen, can cover us for a while.
25% of Millenials have nothing saved. 27% of Baby Boomers also have nothing saved. Half of all American workers have nothing saved for retirement.
But how and why does anyone need to save? Here’s why every adult should be saving emergency money.
Why Saving Money is Necessary
Even those who plan for the best can experience bad luck. A job that once seemed like a permanent position is suddenly lost when the economy takes a turn for the worse.
An unexpected accident or illness leaves someone with mounting medical bills. Perhaps, even without the ability to generate income for a period of time.
The heating system breaks down in the middle of winter. Insurance won’t cover the cost.
The average American household carries a debt of over $15,000. This means there’s not a lot of wiggle room should the need to take on more debt arise.
If credit cards aren’t an option, other people end up taking out expensive loans. Or worse yet, dipping into their retirement savings.
Sometimes, it ends up costing them more than they can afford. Not having savings could result in losing a home, facing bankruptcy, or having possessions repossessed.
Life sometimes throws the unexpected at people. Sometimes, it’s just a matter of poor planning by the individual.
Either way, having emergency money set aside will always come in handy. Many things are out of the control of the individual.
But planning ahead helps people regain control at a time they most need it.
How Much Money Should be Saved
Most experts recommend saving enough money to cover expenses for three to six months. Unfortunately, not everyone has followed this advice.
Most Americans have under $1,000 emergency money saved. While it’s a good start, it may not be enough to cover all expenses.
For those who are renters and are single, saving three months worth of expenses is usually enough. For those with a family or have a mortgage, it’s better to have six months saved.
Even if there are two incomes within the family, it still makes sense to save for six months. Especially if there is a mortgage.
The Best Place to Save the Emergency Money
Do not save the emergency money in a checking account. It’s too easy to forget about it and spend it by accident.
Also, don’t save it in a place where it will be difficult to access should an emergency arise.
Instead, place the emergency money in a high-yield savings account. Since it’s federally secured up to $250,000, it’s the safest place to store the funds.
Since it’s a high-yield account, it will also be earning interest. It’s also really easy to be able to access the emergency money if needed.
It can be accessed through a withdrawal or funds transfer.
Make sure the high-yield savings account is not accessible through a daily-used checking account. It will be too tempting to dip into it.
How to Build Up an Emergency Fund
No matter what age a person is, it’s always a great time to start saving emergency money. Start with the largest amount that’s affordable.
That can be as much as $1,000 or $500 or as little as $25 or even $10. It doesn’t matter.What matters is starting an emergency money fund.
Don’t forget to save the change. Those pennies, dimes, and quarters can add up to some real money. Place it in a jar until it’s overflowing.
Do the same for the $1, $10, and even $20 bills that aren’t needed for necessities.
When the jar starts to overflow, take it to the bank.Then place it all in the savings account.
Set Up a System
Next, start by determining how much money can be saved each month and deposited into the high-yield savings account. Make sure that each month that same amount is deposited into the account.
It’s a good habit to get into. If it’s too difficult to remember, set up an automatic withdrawal.That way, no matter what, the money is saved.
Keep track of how much money is needed to pay bills, incidentals, and for fun. Setting up a monthly budget is a great idea to figure out where the money is going.
If there’s any money leftover, simply have it transferred to add emergency money to the savings account.
Eliminate or Lower Non-Essential Bills
If, after completing a budget, there doesn’t seem to be any money left to add to the savings account, take a deeper look at the expenses. Determine what expenses are absolutely necessary.
Then eliminate any that aren’t. Try getting rid of cable. Amazon Prime, Hulu, and Netflix are much less expensive.
It’s also a great idea to call up phone, cable, and internet companies to see if they’re willing to lower the monthly bill.
Often, if someone has been a loyal customer, they’re more than willing to lower the bill if that person agrees to continue being a customer for a longer period of time.
Any funds saved should be placed in the emergency money savings account.
Add Supplemental Income
While not everyone has the time or energy if at all possible, look into other financial opportunities.
Working from home has become easier with the use of the internet. Look for jobs that allow employees to work on their own time schedule.
Another way to earn extra income is by starting and monetizing a blog. There are many ways to earn extra income simply by recommending products. A six-year-old boy just earned $11 million dollars by recommending his favorite toys.
Sell Unwanted Items
If a second job isn’t possible, there is still a way to earn extra money. Go through the entire household.
Figure out what is no longer needed or wanted. Often, when people start to get organized, they’ll find extra money they never knew they had.
Don’t forget to organize paper documents. That’s where most of the money tends to be found.
After going through the home, any storage spaces, garages, basements, and attics, do some research to find out what the unwanted items are worth.
There are several places to sell items. Mostly, it depends on what the item is, how valuable it is, and what condition it’s in.
A garage sale is one way to quickly start adding emergency money to the savings account. But eBay can be a great option as well.
Many people actually earn a great living selling items on eBay.
Be wary of selling items on Craigslist. Many people pretend they’re interested and then never show up. It can be a waste of time.
Save the Tax Refund
Many people end up receiving a refund from their taxes. Rather than spending it on a vacation or a brand new wardrobe, simply place the money immediately into the emergency money fund.
The average refund is around $3,050. It’s a perfect amount for an emergency fund.
If it seems difficult to try to not spend the money, set it up so that the money goes directly to the emergency savings account. That way, it won’t be missed because it was never really accessible anyway.
Keep Track and Adjusting When Possible
As these new systems are set into motion, keep track of the money expenses. See what is being saved.
Some months may bring in more money than expected. Adjust accordingly and place the extra funds into the emergency money savings account.
Sometimes, an unexpected emergency might pop up. Insurance doesn’t cover a medical expense.
The car breaks down. It’s back to school time and the kids need supplies.
That’s okay. Keep track and adjust as needed.
Some months more money will be placed into the savings account. Other months, some money may be needed to cover those unexpected expenses.
That’s okay, that’s what it’s there for.
Determine What a True Emergency is
Make sure that dipping into the emergency money is only done during a true emergency.
It might be tempting to start believing that an emergency has come up when it hasn’t. A true emergency is needing a new engine.
It’s not needing car insurance. That’s an expected expense.
Birthdays, holidays, and anything bought for the sole purpose of cheering someone up is not an emergency.
Great deals and amazing discounts are also not emergencies. If it’s possible to live without it, it’s not an emergency.
Sometimes, it’s possible to foresee an expense coming up. Maybe the tires are beginning to wear.
Start putting away money specifically for the tires to avoid dipping into the emergency fund.
Keep Learning About Financial Matters
Unfortunately, most high schools don’t educate their students on how to be fiscally responsible. They don’t teach them what to do when the worst happens.
That’s too bad. It would be beneficial to everyone to know the right steps to take.
Thankfully, there are sites like ours. We are dedicated to helping educate our readers on how to be financially responsible.
We want you to live without debt and to enjoy life as much as possible. Keep learning by coming back to our site regularly.