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Unlike a usual savings account which you use to reach a specific goal, an emergency savings fund exists to provide a financial cushion for unexpected circumstances that leave you without a steady income. Ideally, the account will keep you financially afloat for anywhere from three to six months. That may seem like a lot of money to keep in your bank account, but remember that in an emergency, you’ll be happy for any amount of money saved because it will buy you time to find a long-term solution.
Here’s how you can get started.
Your first step should be to calculate the ideal amount to save. In this case, that means enough to maintain a simplified version of your lifestyle. Add up a month’s worth of daily necessities, such as rent or mortgage payments, bills, groceries, and car payments. Exclude expenses you can do without in the case of an emergency, such as new clothes, going out to eat, and other simple luxuries. Once you’ve calculated this number, multiply it by the number of months for which you’d like to plan.
Remember that this is your ideal amount to save; it shouldn’t stop you from starting your emergency fund at a savings rate with an easier mark to hit. The stash can be used for smaller financial emergencies, such as an unexpected car repair, medical procedure, or travel to attend to a serious family matter, but remember that the intent is to keep this money stored as an asset at all times and replace it as soon as possible if a financial emergency drains it.
When choosing where to stash your savings, consider a place where you’re less likely to dip into the money for other expenses. Here are some ideas for where to stash your funds:
Next look at your spending habits and find small ways to set aside money. One of the benefits of this kind of savings account is since you’re planning for a day that will hopefully never arrive, there is no set timeframe by which you need to have your savings in hand. Below are some suggestions to help you decide what works best for you:
Get creative when deciding how to save. You know your spending habits better than anyone and which tricks work best for your budget.
We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more, please call 1-877-360-2472, visit us online, or Ask a Citizen at your nearest Citizens Bank branch.
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