During America Saves week this February, we found some great resources to review saving goals. One of the most important saving goals is to put aside a portion of your income for emergencies. Although it is not easy to have a goal of saving for something that is unexpected, it is extremely valuable to have money set aside when you need to repair your car, or your hot water heater needs to be replaced. In one study, it was found that $500 worth of savings can make a real difference. With less than $500 in savings, 41% of households had difficulty paying their mortgage or rent, but with $500 in savings, only 15% had difficulty paying for their housing.
Here are some tips and resources from America Saves and Military Saves to help you on your way to setting up or learning more about saving for an emergency.
Maintaining an emergency savings account may be the most important difference between those who manage to stay afloat and those who sink in debt. An emergency savings fund consists of a small amount of money, usually in a savings or share account, that you do not have easy access to. Keeping $500 to $1,000 of savings for emergencies can allow you to easily meet unexpected financial challenges such as:
- repairing the brakes on your car;
- paying for a visit to the doctor when your child has the flu;
- replacing a broken window in your house;
- covering the dental expense of filling a cavity;
- paying for a parking ticket; or
- flying to visit a sick parent.
The emergency fund not only provides you with the money to pay for these expenses, it also gives you the “peace of mind” knowing that you can afford these types of financial emergencies. Not having an emergency savings fund is an important reason that many individuals borrow too much money at high interest rates. For example, by saving for emergencies, Americans would probably not have to take out about $2 billion a year in payday loans at interest rates that average 300 to 500 percent.
4 Ways to Save $500 to $1,000 for Emergencies
- Save Automatically. Have part of your paycheck automatically deposited into a savings or share account or set up regular transfers from your checking to your savings account.
- Save your loose change. Putting aside fifty cents a day over the course of a year will allow you to save nearly 40% of a $500 emergency fund.
- Save a portion of your tax refund. Use tax form 8888 to split your return.
- Bring lunch to work. If buying lunch at work costs $5, but making lunch at home costs only $2.50, then in a year, you could afford to create a $500 emergency fund and still have money left over.
Saving money for an emergency fund may be easier if you involve your whole family in meeting this challenge. After you’ve explained the importance of emergency savings to your spouse or children, they may even help build the account.
Where to Keep Emergency Savings
It’s usually best to keep emergency savings in a savings or share account. These types of accounts allow you to access your money when you need it. Keeping your money in a savings account makes it much less likely that you will use these savings to pay for everyday, non-emergency expenses.
You may well need at least $100 to open the savings account and a $200 minimum balance to avoid monthly fees. In most areas, however, there are several financial institutions with lower minimums. Also, banks and credit unions may waive the minimums if you have other accounts at that institution.
Download Saving Options for Emergency Funds
Check out these worksheets to get you started
The military website investandsave.org has some great resources for starting an emergency fund and tracking your expenses so you know how much you can afford to save monthly.
Download Action Plan Track Your Spending
Download Track_Your_Spending_Worksheet
Download Spending_Plan_Worksheet
You might also be interested in the Download Emergency Financial Aid Kit
which is a document that helps you think through writing down financial information in the case of a disaster, public health event or crime. Not all section will apply to all families, but this may be a valuable document to have in a safe place if a disaster were to occur. The main sections of the document include:
- Personal Household Information
- • Professional Advisors and Health Care Providers
- • Checklist of Important Legal Documents and Financial Statements
- • Private Security / Access Information
Other Emergency Savings Tips By Adrianna Domingos-Lupher, AFC®
Owner, Military Money Chica, Personal Finance Blog
- Don’t trust yourself to have easy access to transfer money from your savings account to your checking account? Keep your emergency savings account at a different bank.
- Pay yourself first! Set emergency savings account as an automatic “bill” you pay each month from your checking account.
- If your emergency savings takes a hit, don’t stop saving! Even if you can’t foot the bill for the entire cost of a financial emergency, being able to cover some of the cost is better than nothing.
Content provided by America Saves and Military Saves and Katie Bryan, America Saves Communications Manager.
The Personal Investment Enterprise Program provides tools that empower low-income individuals and families to save and build assets to strengthen their economic stability. To learn more about the program visit www.bouldercountypie.org.
