People are finally starting to realize how important it is to have an emergency savings fund set aside. While the majority of people in this country are still not saving money regularly, that trend may soon begin to change. When you have an emergency fund, it helps you to avoid going into debt when those unexpected emergencies arise.
People who manage to set aside money for emergencies are generally in better financial health and are also better able to budget successfully. Sometimes, though, it can be a bit tempting to spend the emergency fund on things that are not necessarily emergencies. Consider your emergency fund to be another form of insurance that you pay into every month.
Here are some tips to help you stop wasting the money in your emergency savings fund…
Don’t Underestimate Your Financial Needs
Financial experts generally recommend that people should have between four and six months of expenses set aside for those rough times that often happen at the worst possible time. For some, more money might be necessary. In fact, if you can get a full year’s worth of expenses in your emergency fund, you will be well prepared to get by, no matter what happens.
Understand What a Real Financial Emergency is
When people habitually dip into their emergency funds, they often do so for things, like car repairs or medical bills. The emergency fund can help with those types of expenses, but it is better to exhaust other funding options before you drain your emergency fund. Even if you have to use a credit card, you can pay those expenses back and still have plenty of emergency cash on hand in your savings for any type of emergency that comes your way.
Put Your Emergency Cash in the Bank
Don’t keep all of your emergency savings in cash around the house. It is better to have that money in the bank; possibly earning a little bit of interest. Don’t throw the cash in with your checking account or any other savings account. It is too easy to get tempted to spend the money when it is sitting in an account with all your other funds. Treat the emergency fund as a standalone account that you only make deposits on; not withdrawals.
Keep Tabs on your Expenses
The whole idea of an emergency fund is to have money on hand to handle X amount of months. Most of us find that our living expenses increase over the years. That emergency fund that you started pumping money into a few years ago may not be large enough to cover your current living expenses. From time to time, crack open your financial books and tally up your average monthly expenses. Account for any increases in your emergency savings fund to make sure that you have enough money available in your emergency fund to get by for the X amount of months that you originally planned for.
Putting money into your emergency fund is a financial habit that you will be glad you established when life throws you a curve ball. Plus, having enough money in your emergency fund to get by for an extended period of time allows you to rest easy and to avoid the stresses that people often have when they don’t have enough money set aside for a rainy day. Emergencies happen – you can count on that – but emergencies won’t cause you as many problems when you have enough money saved up in your emergency fund.
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