subject: Why Setting Up An Emergency Fund Is Necessary [print this page] If you are new to saving, setting up an emergency fund may sound daunting since many financial experts say that a good emergency fund is anywhere from $500-$2,000. That kind of savings does not show up overnight, but an emergency savings account is a financial necessity, and you may be surprised to find out how easy it is to accumulate the funds to cover an unexpected expense.
What Is An Emergency Fund?
An emergency fund is the most basic savings account, with the purpose being to cover the cost of an unexpected expense. It is not designed to pay for catastrophic expenses such as a serious illness.
What Is The Importance of Setting Up An Emergency Fund?
What if the fuel pump in your car goes out, and you have to pay for a tow and repairs? What if your child has to be taken to the emergency room, and the copay is $200? Without an emergency fund you will be paying for these expenses out-of-pocket, leaving less money for the rest of the month. You might even be unable to pay off your credit card balance in full. By setting up an emergency fund, you prepare yourself to pay for these costly expenses.
How to Save For an Emergency Fund?
Saving enough money in an emergency fund does not take as long as you might think. The most important rule is discipline. Without discipline, none of these tips will work in the long run. But if you are ready to set up an emergency fund, here are some techniques to try.
1. Set a goal - Decide when you want to have your emergency fund filled. That will help you determine if you are on pace to have the savings you desire. If you want $1,200 saved up in one year, you just need set aside $100 per month.
2. Pay yourself first - If you never see the money, you don't miss it. See if your company can deposit your emergency fund savings directly to its own account. If they can't, you should make an electronic transfer to your emergency account.
3. Eat out less - This is perhaps the easiest way to save for an emergency fund. If you eliminate one $20 meal per week you will save $1,040 annually. If you are a coffee drinker, eliminating one $5 cup per week will save $260 per year. Also, don't waste food you buy at the supermarket. Eat more at home, and eat the food you purchase before it spoils.
4. Buy things on sale - Use coupons to save even more. In addition, only buy the things you need, and eliminate impulse buys that leave you with items you don't really want.
5. Cut small unnecessary expenses - Look at your bank fees, are you paying a lot in ATM fees? How much are you spending on checks? Did you know you can order checks online and save up to 50%? What about your cable bill? Are you paying for premium channels that you never use? By cutting these off, you can cut your bill by 15-25% depending on your cable provider. The same goes for your mobile phone bill. If you rarely use text messages or you make few calls, then look for a cheaper phone plan.
An emergency fund will give you the peace of mind to know that you can afford car troubles, illness, and accidents. With a little willpower and small adjustments in your lifestyle, you can sleep better after setting up an emergency fund.
