A key part of any smart financial plan is setting aside money for emergencies. According to the Federal Reserve, close to half of Americans would have a difficult time paying for an emergency in excess of $400 without borrowing money or using credit cards. Starting an emergency fund will provide the money you need to cover expenses related to emergency medical visits, job loss or car repairs.
For those on a tight budget, saving hundreds of dollars each month for an emergency may sound infeasible. However, if you automatically withdraw a modest amount from your paycheck, even as little as $25, the fund will grow over time. Place money in high-yield savings accounts to earn interest, but still, have access to funds if an emergency arises. Compare APY rates from online and brick-and-mortar banks to choose the best place to keep your cash. An emergency fund should always be separated from any other bank accounts to avoid dipping into your savings. Cutting back on certain expenses will help you increase the amount you can put into the fund. Examples of things to remove from your budget include coffee shop visits, eating out, smoking and subscription services.
Save Any Extras
To jump-start your emergency fund, you can add any “extra” money you receive into the fund. For instance, you could sell items you no longer need. Set up an online garage sale to clear out your Chicago apartment and transfer any earnings into your emergency fund. If you receive a tax refund, put the money into the account. Any side income you make could go toward an emergency fund too. For instance, if you have a second job or work as a sitter or driver from time to time, use the income for the emergency stash.
Set a Goal
Set a savings goal to reach for your emergency fund and make a pact to leave the money untouched. Ideally, you should have an emergency fund with enough money to cover three to six months of living expenses. For instance, if you become unemployed, you can rely on emergency money to pay any bills while you search for a new job.
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