This guide will help you make the most of your emergency fund by setting out how much money you need to save and deciding how and when to use your savings. In this article, we will look at what an emergency fund is and what it is used for. Money-saving tips and where to put your money.
This includes setting a target for building up an emergency fund and deciding how much you want to save each month. Use these saving tips to help you create your own emergency fund.
At The Minimum Open A Separate Savings Account For Your Emergency Fund
If you don’t have one, open separate savings or checking account for an emergency savings fund that you don’t have easy access to. The idea is to be able to make the deposit and forget about it! Well not literally, don’t forget about it completely. But, you’ve heard the phrase “set it and forget it”. If you don’t think about it much, there’s less of a chance you will make a withdrawal when you are not supposed to.
Top Places To Stash Your Emergency Fund
1. A High Yield Savings Account
High-yield savings accounts differ from standard savings accounts in that it offers a higher interest rate. Allowing your money to grow even faster, compared to a traditional savings account. The interest rates from these accounts are given as an Annual Percentage Yield (APY).
It’s important to know, however, that the APY that savings accounts offer once you join up can change at any time. These rates are variable and can go up or down in accordance with the Federal Reserve’s interest rate.
Though this economic climate has caused savings rates to drop as of lately, the highest-yielding accounts can still earn you over 20 times more money than regular savings accounts. With the national average APY on savings accounts at just 0.06%, it’s very likely that regardless of what your high-yield account offers, it’ll still outearn a standard bank account.
And when the economy recovers and the Federal Reserve later raises interest rates, APYs on savings accounts will follow suit. Not only does your money earn a much better return in a high-yield savings account, but you will continue to have access to your cash when you need it.
Your money in a high-yield savings account will also be federally insured by the Federal Deposit Insurance Corporation (FDIC). Making this type of savings account safe and progressive.
2. Money Market Account
Like high yield savings accounts, Money Market accounts have similar APY and monthly fees. Unlike regular savings accounts, these accounts may include a debit card and have check-writing privileges or both. Making it easy to pay for an emergency car repair or doctor bill.
But again, keep your emergency fund in a totally separate account at a financial institution separate from any of your other accounts. To help you “set it and forget it” unless you have a true emergency.
3. Traditional Bank Account
If you don’t care much about the bells and whistles of a specialized account. Or just want to open your account with a minimal deposit. Then you can always opt to put your emergency fund in a traditional checking or savings account at your local bank.
You won’t earn the maximum amount of interest, but you’ve got the peace of mind that comes from knowing you’ll be able to access your funds shortly at any time in case of an emergency. Don’t forget, one of the most important money saving tips is to remember the “set it and forget it” principle though.
How Much Should You Put Into An Emergency Fund?
There is no simple one-size-fits-all correct answer to that question. Most experts agree that saving between three and 6 months of expenses is adequate. Depending on how well you budget your finances, saving up six months’ expenses could take a substantial amount of your time.
A better option could be to save up a starter emergency fund. Then, work towards a more long-term plan. A good starter fund could be $1,000. Which might cover many emergencies you may face.
Then, work toward adding more money to your emergency fund as a part of your overall monthly budget. If you have existing debt, it’s better to work towards paying it off first. Before, creating a much bigger emergency fund.
Having an emergency fund will give you peace of mind knowing that you are well prepared for an emergency that may arise. I hope these money-saving tips will help you create your own emergency fund. It can take the weight off your back if an emergency situation suddenly pops up. It is ill-advised not to have one. Especially in these times. As soon as you can. For yourself and your family, start contributing to your emergency fund. You’ll be glad you did.