Unexpected expenses can be challenging on many levels, but you can be better prepared financially if you have savings set aside. One place to start is to establish an emergency fund.
MSUFCU Chief Marketing Officer Deidre Davis discusses some strategies to get started on your savings plan.
What is an emergency fund and why do you need one?
An emergency fund can allow you to pay expenses you have not budgeted for or cover bills if your income changes or something unplanned happens. This could include unemployment, a medical emergency, paying for home repairs, emergency veterinarian bills, or vehicle repairs.
According to bankrate.com, approximately 28% of adults do not have any funds set aside for unplanned expenses. A good rule of thumb is to have an emergency fund with three to six months’ worth of expenses, with $1,000 being a good starting point.
You can reach the $1,000 goal for your emergency fund in six months by transferring $167 from your checking account to your savings account each month (or $42 each week). In one year, you could reach the goal of $1,000 by transferring $84 a month (or $20 each week) to your emergency fund.
A helpful method to ensure that you consistently save is to set up automatic transfers to occur every payday so that the money goes into your savings before you have a chance to spend it. This will help make saving a regular habit.
How much should you save?
First, calculate your living expenses, including mortgage or rent, utilities, groceries, and vehicle costs. Then, start by saving enough per month to reach $1,000. Then build from there until you can cover your living expenses for three months.
Are there ways to save?
One way to save money is to take advantage of low-interest rates, especially if you have a good credit score. You could potentially save hundreds, or thousands, of dollars over your loan term. Contact your financial institution to discuss how refinancing your auto or mortgage loan — or both — could save you money.
If I am ready to open an emergency fund, what type of account should I look for?
When you are starting out, it’s best to look for a savings account that offers a higher interest rate, has no minimum balance requirements, and no fees. Remember, you don’t want to access these funds unless you need to, but they should be accessible without a fee.
How can MSUFCU help?
MSUFCU has introduced its Savings Builder℠ account, which is designed to help you save for life's unexpected events faster. Unlike traditional savings accounts, Savings Builder pays you more on your initial savings, helping you build your savings faster so you'll have it when you need it most.
For more information, visit msufcu.org.
Contents of article provided by MSUFCU.