Why Your Emergency Fund is More Important Than Ever

Smart Solutions • February 2015

Let's face it. We just can't predict what the future will hold, especially in today's uncertain economy. Having a financial cushion for the unexpected — losing a job or incurring unplanned medical expenses — just makes good financial sense.

Without one, your main choices to cover unforeseen expenses may be withdrawing money from your retirement accounts (and paying the accompanying penalties) or racking up high-interest credit card debt. Either way, your finances suffer a serious setback.

Thankfully, setting up an emergency fund is simple — and we've outlined five steps to get you started.

1. Write down your monthly expenses
Mortgage, car payment, utilities, groceries, etc. — so you know what costs your fund may need to cover.
2. Determine how much you need to save in your rainy day fund
Experts recommend accumulating enough to cover anywhere from three months to a year of expenses.
3. Stay on top of your finances.
Develop a plan to start saving, including how much you'll set aside each month and where you can trim spending to find extra funds for your emergency stash. (See below for some ideas.)
4. Designate or open an account that’s easily accessible in an emergency
One that you won't dig into for temptations. For example, your 401(k) may penalize you for early withdrawals, while your checking account may be just a little too handy to withdraw from. Instead, consider a dedicated savings or money market account — both of which make it easy to access funds and offer interest, too.
5. Make savings a no-brainer
Set up an auto-transfer to your designated emergency account every pay period.

Finally, be sure to reward yourself with something special — a massage, a night out, or other "off-limit" treat — when you meet your savings goal. That way, you won't feel deprived and be tempted to give up.

Interested in learning more?


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