You’ve heard it before — the mantra from financial planners across the country — save three to six months’ of your living expenses for emergencies, such as a layoff or sudden illness, as well as $1,000 for unexpected expenses like replacing an appliance or car repairs. It makes sense, but isn’t always easy to achieve.
Consistency is the key to building your “rainy day” savings fund. First, determine how much you need to save, then have a set amount taken out of your check each payday until you reach that amount. Or, treat the emergency fund as a bill. Set the “minimum payment” to yourself, with a due date, and pay it along with your other bills.
In addition to your regular payments, put extra money into the fund when you can. Tax refunds, job bonuses, overtime pay or raises are great resources to build your fund more quickly. If you pay off a bill, start putting that payment amount into the fund before you get used to having it available. If you’re serious about building your emergency fund as quickly as possible, you can probably think of other ways to increase your savings. Some financial planners go so far as to suggest you work a second job for awhile to get that fund built up.
You’ll want to keep your emergency fund in a separate savings account that is readily accessible, such as a money market account at TFCU. Once you’ve saved the amount you need, you can put the money in share certificates and earn a little more money on the funds. Share certificates come in different maturities, such as three months, six months, one year, etc., and cashing them in early will result in a penalty. To ensure you have access to funds when you need them, you can keep some in the money market account and split the remaining money into two or three different certificates of varying maturities.