Having an emergency fund can help soften life’s financial blows, whether they’re caused by inflation, unemployment, or illness. And, as Consumer Reports explains, getting started may not be as hard as you think.
With any luck, it’s working now. You have a steady salary, pay your bills on time, and even have a little extra money left over.
But what if the unexpected happens? We all experience financial emergencies, whether it’s major home repairs, medical bills, or loss of income.
Lisa Gill writes about personal finance for Consumer Reports. She says having an emergency fund to cover these types of unplanned expenses can protect you from large debts that can easily turn into a financial crisis.
Many financial planners say a good rule of thumb is to set aside enough money to cover essential expenses for three to six months. For housing, food, transportation, and debt repayment. So he figures out how much that will be each month and multiplies that by up to 6 to figure out how much he should put aside for an emergency fund.
Once you’ve set your savings goals, don’t let the numbers fool you. It is definitely important to start saving as much as possible. Whether it’s $5 or $10 a month, you’ll be amazed at how quickly it adds up.
With our online savings calculator, you’ll know how much you’ll need to save each month to reach your goals, and how quickly that money will grow.
Consumer Reports suggests putting that money in a high-yield savings bank or penalty-free certificate of deposit. Many of these accounts currently have interest rates in excess of 4%.
Make saving even easier by setting up automatic deposits or transfers from your checking account to your emergency fund. Track your contributions and keep them safe until you need them.
Building emergency savings should be at the top of your list, but you may have other urgent financial obligations, such as high-interest credit card debt. If so, paying off that debt should be your top priority. If you have low-interest debt, you can use some of your savings to pay off and the rest to an emergency fund to balance it out. For more information about paying off credit card debt, visit CR.org.