How to Save Money for Emergencies
Are you financially prepared to cover an emergency? If not, then it’s time to start building an emergency fund. An emergency fund is cash put aside for unexpected and costly emergencies, such as a job loss, unexpected medical visit or hospitalization, car breakdown, or necessary home repair. An emergency fund can help you stay afloat with your finances so you can avoid taking out high-interest personal loans or credit card debt. Learn how you can start saving money for an emergency fund below.
Ways You Can Save Money for Your Emergency Fund
There are many ways you can save money for your emergency fund. From cutting back on monthly expenses to adding a source of income, finding the method that’s right for you is easy. Here are a few examples to consider:
- Keep your emergency fund money in an accessible place, such as a high-yield savings account
- Decrease your monthly spending and save the difference into your emergency fund
- Consider putting your tax return into your emergency fund
- Find a side hustle, such as selling items online or freelancing work, to add to your monthly income
- If you get paid through direct deposit, see if your employer can send a percentage of your wages directly into the account holding your emergency fund
- Avoid the temptation to pull cash from your emergency fund for anything that isn’t an emergency
[ READ MORE: Tips for Minimizing Credit Card Debt ]
How Much Money Should I Have in My Emergency Fund?
Now you may be wondering how much money you should have in your emergency fund. That answer will vary by the person. It’s recommended that everyone should have at least 6 months of expenses stashed away in their emergency fund. For example, if you spend $2,000 a month, you should have at least $12,000 saved away in your emergency fund.
Of course, getting to that end goal can feel intimidating for anyone starting out. In this scenario, it’s a good idea to set realistic smaller goals and work your way up. For example, you could set a goal of $500 then increase it to $1,000 once you hit it, then again to $2,000, then $3,000, and so on. If you’re unsure of how much money you should be saving each month, check out the 50/30/20 budget rule. Also, explore the U.S. Auto Sales blog for more tips and tricks like this.