There is no shortage of financial advice available, including paying off debt, maxing out your 401(k), paying off your mortgage, and improving your credit score. One of the most important things you can do to improve your financial health is to establish an emergency fund.
The purpose of the fund is to save for a rainy day so if an unexpected situation arises, you are able to handle it without compounding a financial disaster to your emergency. An emergency can turn into a larger financial problem if you are forced to rely on credit cards, dip into your retirement account, or take out a home equity loan in order to pay for unexpected expenses. Not having an emergency fund can jeopardize all your other financial goals. An established emergency fund is the foundation of good financial health.
Know the reasons for your emergency fund.
You’re either starting an emergency fund or adding to it. Congratulations! You realize the importance of an emergency fund, but do you know what constitutes an actual “emergency?” It may be tempting to dip into your emergency fund to put a down payment on a new car, get the latest technology, remodel your bathroom, etc., but those items don’t constitute an “emergency.” Reserve your emergency fund for unexpected medical bills, job loss, auto repairs, or a broken furnace—things that are unexpected and an actual emergency.
How much do I need?
You may think you can’t afford an emergency fund, but the reality is you can’t afford not to have one. Starting small is better than not starting at all. Make it a goal to get your emergency fund up to $1,000. Once you reach that point, try to expand it to cover three to six months of living expenses. Some experts even suggest having enough to cover one year’s worth of expenses —a hefty goal, but worth serious consideration, especially in the current job market.
How do I get started?
The best place to keep your emergency funds is in an easily accessible savings account where the money can be withdrawn without penalty. Make it simple by scheduling automatic deposits so you don’t forget to save. After a while, you won’t even notice that you have scheduled $20 a week to go into your emergency fund, and by the end of the year you’ll have $1,000!
To help you keep on track with your savings goal, Hills Bank has created the Savers Club account. You select a plan option where you save $5 – $125 per week in $5 increments. If you meet or exceed the balance equivalent of 50 weekly deposits based upon the plan you’ve chosen, Hills Bank will make an additional bonus deposit into your account. It’s a great way to meet your saving goal. Learn more about the Savers Club and start saving today!
Is establishing an emergency fund on your list of resolutions this year? If so, leave a comment making yourself accountable to your resolutions in the comment box below.