What would happen if you and your family were faced with an emergency? Would you have the money you need to cover your expenses?
If you’re like a lot of people the answer is no – or at best, maybe. At Addition Financial, we know the importance of having emergency funds to pay for unexpected expenses. That’s why we work with our clients to help them set savings goals and plan for their futures.
If you don’t have money set aside for the unexpected, you might be wondering how to start an emergency fund and set savings goals. Here are some things that may help.
How Much Money Should Be in Your Emergency Fund?
The first thing to consider is how much money you should have in your emergency fund. If you’re one of the 55 million Americans who has no money set aside for an emergency, then any amount you save is going to be an improvement.
That said, there are some guidelines to follow. A good rule of thumb is that you should have enough funds to cover three to six months’ worth of necessary expenses. Those include:
- Rent or mortgage payments
- Insurance payments
- Transportation costs (gas, car payment, public transit expenses, etc.)
You don’t need to worry about money for extras like eating out unless you want to. The priority is to have enough set aside to pay for the things you and your family need each month.
There’s some flexibility in how much you save, but if your health is not good or you think you may have difficulty finding a new job if you lose yours, you may want to err on the side of caution and should aim for a higher goal to ensure you have what you need.
Once you have six months’ worth of expenses saved, you may decide that you want to save more. Or, you may decide to leave that money alone and save toward a different goal, like your retirement or your child’s college education.
Tips for Building Your Emergency Fund
Saving enough money to cover emergency expenses can take time. You have two options when it comes to getting started. You can either take a lump sum and open an account to kick things off. For example, your tax refund could go into your emergency savings account.
The second option is to divide your savings goal by 12 and set aside a fixed amount each month until you have what you need. Here are some tips that may help:
- Start by calculating your necessary monthly expenses. For amounts that fluctuate, like utility bills and groceries, use averages so that you get a clear picture of what you’ll need to have on hand.
- Look for areas where you can save a little money. For example, you may be able to cut your grocery bill by clipping coupons or buying in bulk. Any money you save can be set aside for your emergency fund.
- Create a detailed budget and assign yourself and each family member a cash allowance to minimize unplanned spending.
You may also decide to create an invoice for your monthly emergency fund contribution and put it in with your other bills. An alternative is to ask your credit union or bank to split your direct deposit between a checking account and a savings account. That way, your savings will be automated.
Tips for Creating Savings Goals
In addition to creating an emergency fund, you may have other savings goals that you want to reach. For example, you may want to:
- Set aside and invest money for your retirement
- Save money to help pay for your children’s college education
- Buy a new car
- Plan a family vacation
After you’ve created your emergency fund and you have enough money to protect you and your family, you may decide to create additional savings goals.
A good way to start is to prioritize your goals. It’s common for families to have more than one goal and there’s no reason you can’t work toward several at the same time with careful planning. You might have young children. In that case, setting aside a small amount each year as they grow can result in a significant amount to help them pay for college.
Once you’ve identified your goals, you can decide how to save for them. Here again, you may want to consider splitting your deposit between checking and savings to ensure that money gets set aside each month for your goals.
At Addition Financial we offer special savings accounts for summer and vacation savings and educational expenses. Having a dedicated account for a specific goal can make it easy to track what you’ve saved.
Creating a family emergency fund is a smart move – and one that can save you a lot of stress and worry if the unexpected happens.
To learn more about Addition Financial’s savings accounts and how they can help you achieve your savings goals, please click here now.