One major issue of importance lately is saving your money in the case of an emergency, if in the event that you lose your job, faulty investments or other financial disaster strikes. Lessons from the recent recessions have shown that this is an issue that can occur and hit you at the most inopportune times. Savings is an important component to have in the financial tool set.
Starting A Savings
The idea is to plan for a potential calamity, but hope it never happens. With many financial decisions it comes down to planning and having an actionable goal. One of the first reasonable goals is to save at least six months of living expenses, perhaps more if the overall economic outlook isn’t looking to good. Ideally a whole years worth of saving would be nice, but usually isn’t feasible.
It is important to take into account a multiple number of factors such as job security, health and your current rate of debt. Some other considerations are whether or not you support your children and they’re still at an age of dependency. Also how well your credit score is or access to emergency sources of credit. Even without a specific access at the moment, there are services out there that can help you.
One such example is this from Kash King, a quick method to secure either a couple hundred to thousands of dollars. It supplies quick approval and can get you out of a financial pinch quickly.
Separating An Emergency Fund
An emergency fund creation needs to be separate from your other line of finances so you there is no temptation to draw from it. Creating a separate capital fund will allow you purchase large ticket items in the future, most likely the following five years.
Some of these expenses to save for could be a new car, vacations or down payment on a home. It is difficult for a lot of people to save up to six months of living expensive. Some of the first things you’ll need to know how to figure out where your money is going. Differentiate where fixed expenses are and when your own discretionary expenses begin. The areas that you cut spending can then be applied to your savings instead.
The start will be a balancing act, try getting rid of as much debt as possible in the beginning. This accrues interest and halts future savings from taking root. Basic expenses include living expenses and general survival aspects of food, shelter and clothing.
Many people are already making some kind of regular contributions to a savings account. One of the last things you’ll want to do is tap into any savings or retirement funds for an emergency. These are long-term financial goals that can hurt you in the long run if taken from. You’ll have to pay taxes on withdrawals along with other tax penalties.
The ideal order of savings should be first eliminating credit card debt followed by setting out an allotted savings amount relative to your spending. Review your budget on a multiyear basis to determine if you can save more and contribute even greater sums to your emergency fund.
Don’t purchase any major items unless the emergency fund is fully stocked and able to recover from a type of emergency payment. That is to say if you go over the 6 – 12 months you can begin thinking about a down payment on a car or house.
Location of Funding
Emergency money needs to be liquid and not tied up in any major assets. Bank certificates have a penalty for early removal so that is a no go. On the other hand investing in the stock market or mutual funds can be a risk if the market is down when you need to cash out.
Really the safest place to store an emergency fund is simple in a bank savings account. Check the local market rates for banks or credit unions. You’ll have more purchasing power and a faster way to withdraw cash by using this method. One thing you’ll want to avoid is holding up your money any longer than a year.
Once you’ve met your savings goals it is important to put that money in other investments like the stock market and be able to hold it in areas for a couple of years. Overall, to have a healthy financial balance it is important to allocate an emergency fund for current and future well being.
For ways to make extra money to fund an emergency fund, retirement, debt payoff, or a vacation check out these articles.
Daisy Elliott is a single Mom who struggled financially for years, seemingly lurching from one crises to the next. But then Daisy took full responsibility and made some changes in her life. She now shares her financial wisdom with others who are struggling to survive.