Establishing an Emergency Savings Account
An important component of your budget is to save for emergencies. I am not talking about saving three months of income. I am talking about socking away $1000.00 to $1500.00 into a separate emergency savings account. This is not a huge goal for you to begin and accomplish. Even if you cannot fund the entire account today, open a savings account with the first $100.00 or whatever you can afford.
Then keep contributing to this account until you hit your target amount. My advice is to treat this just as you would any other bill. Setup this account to be automatically funded.
Why have an emergency savings account?
If you need a brake job for your car, or your washer crashes and burns having an emergency fund is going to save you a great deal of money instead of having to fund these types of expenses on your credit card.
Some Do's and Dont's
- Don't forget to payback this account after you use it.
- Even once you reach your target, keep funding the account. It never hurts to have a supply of cash on hand.
- Do not think of this account as a long term investment. It is for short term emergencies.
- Do not use this account to fund the purchase of non emergency items. (For instance, the super bowl is 2 weeks away and you would like that big screen TV).
- Set a limit on the minimum amount that you will withdraw. (For example, you forgot that the pet licenses are due and are going to cost you $50.00. You can most likely absorb this expense in your budget). In other words, do not nickel and dime this account.