What if you lost your job or needed a major home repair – could you still handle your regular bills and financial obligations? Are you prepared for this type of unexpected financial hardship?
For many Americans, the answer is NO. So, in a pinch, they turn to credit cards for relief. But, that relief comes at a high cost.
Today, as more Americans move back toward traditional saving strategies, they are realizing that adding debt is not the answer. Instead, they’re putting money into an emergency fund.
An emergency fund is, and I cannot stress this enough – for emergencies. It ideally would cover your financial obligations for six months or more. It’s an important part of taking control of your finances and building your family’s financial safety net in 2013. Here’s how to get started:
First, make a list of your monthly obligations. In addition to listing regular bills such as utilities and insurance payments, be sure to include other regular costs – including groceries, household items, transportation costs and miscellaneous expenses. You’ll want to have a realistic picture of what you need in order to get by each month.
It may be difficult to skim from your paycheck to place money into an emergency fund, but you can start small – creating a direct deposit helps. Even beginning with $10 or $20 on a regular basis can set you on the right track. You can gradually increase the deposits until you’ve reached a level where you’re comfortable.
You may be tempted to simply place your emergency fund in a separate checking account, but to make the money a little more difficult to access, look for interest bearing savings accounts or money market accounts. Use an Internet search to locate the best interest rates, but be sure you choose a bank or financial institution that is FDIC-insured.
By regularly contributing to an emergency fund, you’re protecting yourself and creating a buffer if you face a financial hardship. And, as a bonus, you’ll feel better about your overall financial picture.