Start an Emergency Fund (Article #3 in a Series of 5)
Taking control of your finances is more than just spending less and earning more money. It is also about preparing properly for your future by saving effectively and having funds available in case of emergency. There are five critical steps to follow to help you gain more control of your finances, which are:
- Track Every Penny You Spend
- Develop a Useful Budget
- Start an Emergency Fund
- Get Out of Debt
- Focus on Your Future
In this article, we will focus on the third step in the process, which is: “Start an Emergency Fund.”
Many people live paycheck-to-paycheck and figure they cannot save. That’s just not true. Everyone can save…it just takes discipline. As part of your budget, you need to develop an emergency fund for things like unexpected medical or vehicle expenses. Many financial experts suggest that once you have safely put together an emergency fund of at least $1,000, you can then move on to attacking your debt.
But, how can you create a fund when you are living so tightly month-to-month?
Pay yourself first! Make having an emergency fund something you must do to survive, at least as important as paying the rent, mortgage or electricity bill. The rule of thumb is to save approximately 10 percent or more of your gross income. However, many experts recommend saving three to six months worth of monthly expenses that can be easily accessed in case of an emergency.
To calculate your current savings rate, divide how much you save each month by your monthly income. For example, if you earn $5,000 each month and you save an average of $250 each month, your savings rate is 5%, which is low. Of course, saving some money is better than nothing, but you may want to adjust to save a little more each month. Remember, you want to have an emergency fund set up prior to paying down any other debt.
Be sure the money you save for your emergency fund is liquid, or in other words, you must be able to access it. For example, you should consider a basic savings or money market account for this purpose. While these accounts do not yield the highest rates, they do allow you to access your money easily.
To learn more about the savings options available at Central National Bank, click here. Or, if you prefer, you may call one of our representatives at (888) 262-5456, or stop by one of our branch locations for more information.