Having an emergency savings fund may be the most important difference between those who manage to stay afloat and those who are sinking financially.
Emergency Savings Funds Help
Maintaining emergency savings of $500 to $1000 allows you to withstand unexpected financial challenges such as:
- Repairing the brakes on your car
- Buying your child a new pair of needed shoes
- Buying expensive prescriptions
- Covering some dental expenses
- Flying to visit a sick parent
The emergency fund not only allows you to cover these expenses, but also it gives you the peace of mind that you can afford these types of financial emergencies. Not having an emergency savings fund is the reason many individuals borrow too much money at high-interest rates through payday loans and other traps.
“It is best to keep emergency savings in a bank or credit union savings account,” said Cynthia White, a regional agent in Family Resource Management and Workforce Development with the Alabama Cooperative Extension System. “These types of accounts offer easier access to your money than certificates of deposit, U.S. Savings Bonds or mutual funds. Keeping your money in a savings account makes it less likely that you will use the savings to pay for every day, non-emergency expenses. That’s why it is usually a mistake to keep your emergency fund in a checking account.”
You may need at least $100 to open a savings account and a $200 minimum balance to avoid monthly fees. In most areas, several financial institutions have lower minimums. Also, banks and credit unions may waive the minimums if you have other accounts at that institution.
Finding Money To Save
How do you find money to save? Start with the loose change that accumulates. You may be able to save at least $100 in loose change a year. Use this to open a savings account. If you receive a tax refund or Earned Income Tax Credit, use a portion of this money to begin or increase savings. Because the tax credits average nearly $2000, you may be able to open a savings account and still have plenty of money to pay off debts or cover other expenses.
Involve the Whole Family
“Building an emergency fund may be easier if you involve your whole family in meeting this challenge,” White added. “After you’ve explained the importance of emergency savings to your spouse or children, they may get involved in helping to cut expenses on the energy bill, food expenses, entertainment and more.”
Transfer Money from Checking to Saving Each Month
Another way to accumulate $500 to $1000 emergency savings is to ask your bank or credit union to automatically transfer funds from checking to savings monthly. It’s an easy way to save. What you don’t ever see, you may never miss.
Get Involved in America Saves
Get involved in the America Saves Campaign. It is a national initiative in which 1000 organizations encourage and assist Americans to save and build wealth. The initiative is run by the Consumer Federation of America, a national nonprofit organization that does consumer advocacy, research, and education.
Visit the website at www.AmericaSaves.org. Read the savings strategies and how to reduce debt. If interested, sign up as an American Saver and make a commitment to save or reduce debt. It is a free service that offers monthly tips on savings and cutting debt and more.
Extension Daily is the official blog of the Alabama Cooperative Extension System (ACES). Reprinted with permission.