There are many types of savings every financially responsible adult should consider. The emergency fund is perhaps the most important, even above saving for retirement. Having an emergency fund will protect you against many financial hardships. These hardships include:
- Job Loss
- Large, Immediate Purchases
- Home and Vehicle Repairs
- Emergency Travel
Here are three helpful tips when saving an emergency fund.
Use a Financial Advisor
While hiring a professional financial advisor is expensive, it is a financially wise thing to do, especially if you are not good with your finances. Many intelligent and savvy adults who are good at their jobs and have talents in other areas are not good with money. Commonly, most working adults carry a little to a far more significant amount of debt brought about by the mishandling of their money.
The cost of hiring a financial advisor will easily be defrayed by the amount of savings having a professional help you straighten out your finances will gain you. These financial experts know how to help you identify where you can make changes and create savings accounts for your future and emergencies.
Most people hesitate to use a financial advisor because of the cost, but because they are embarrassed by their financial situation and laying it open in front of a virtual stranger can be challenging. If you can put these concerns aside and understand these professionals have seen it all and know how to get you on the right financial path, you will not regret your decision.
Not only will they help you get a much-needed emergency fund in place quickly, but they can help you with every aspect of your finances, leading you to financial freedom.
The Amount of Your Emergency Fund
Most people ask when contemplating an emergency fund is how much should the fund contain? If you are a novice at saving, the answer is that you should start small and save an amount of $1000 as quickly as possible. These savings will easily cover minor issues such as a car or home repairs or other similar problems.
Once you have the $1,000 emergency nest egg, it is time to build that savings to cover more significant issues such as job loss or medical problems that could cause longer-term income loss. Most experts will recommend this amount be equal to at least six months of your income. Doing this will ensure you are covered if there are hindrances to employment for a prolonged period.
Once you have six months of your income saved, it is suggested that you continue to build towards a year. Keep in mind that these savings are never to be touched for anything other than an emergency or financial hardship. It would be best to have additional protection to include those for specific large purchases or vacations and those specifically towards your retirement funds. But before you contribute to any of those other savings accounts, you should use all your savings efforts to build your emergency fund.
Where to Keep Your Emergency Fund
You could keep your emergency fund in several places, but you want to follow some definite rules to ensure your emergency funds are held in the right place(s).
Before deciding where to keep the funds that work best for you, there is one rule to follow, no matter where you choose to keep this fund. Ensure it is accessible without penalties or days of red tape to obtain. After all, it has emergency right in the name, implying you will need it right away. However, please don’t make it so accessible that you will be tempted to use it for non-emergency purchases. Restrain yourself from “borrowing” from this fund for non-emergency desires of your heart.
One of the safest places to keep your emergency funds while also fitting the previously describe rule of thumb is in an online bank. Banks that are entirely housed and operated online make electronic transactions easy while also being an account not attached to your traditional bank account, making accessing it more tempting.
Another excellent account that will not be attached to your traditional bank account is a money market account. This type of account is not only a standalone account, but it can gain your interest while your money is sitting in reserve, waiting for an emergency. Savings accounts that earn interest are never wrong, especially when you try to build this emergency account to equal a year’s income.
Conclusion
Having an emergency fund equals peace of mind. Many people find themselves struggling in times of immediate financial need. Using these three tips, you should be able to establish a healthy and helpful emergency fund. Whether it is $1000 or more, which is suggested, having emergency funds saved will help in times of financial need, and that peace of mind is priceless.
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