During the COVID-19 pandemic, many have experienced hardship like never before. These are unprecedented times for many and we’re realizing the importance of an emergency fund. However, according to moneyunder30.com, only 23% of Americans have emergency savings to cover six months of expenses and 26% of Americans have no emergency savings. Being prepared for emergencies is more important than ever. Here are some ways to help you budget to make sure you’re prepared in the future.
Steps to a successful emergency fund
1. Create a budget
Look at your finances and figure out where you are spending your money and where you could cut something from your budget. For example, are you someone who likes to go out and get a $6 coffee in the morning? Doing that five times a week for a month is an average cost of $120. What if you made coffee at home and put that amount in savings? That could end up being over $1,400 saved in a year!
2. Open a savings account
Do your research to try to find an account with the best dividend rates, while still allowing easy access. You want to make sure you can access your money when an emergency comes up. Certificates typically offer better rates, but most restrict access to your money until they mature. Certificates are great for specific savings goals, but can be challenging for emergency funds. It is generally best to place your emergency money in areas where you will not be charged a fee for withdrawing.
3. Give yourself a savings goal
Be realistic with this goal. Not one person’s savings goal is the same. It is ok if you need to start out small. The point is that you will be saving and it will become a habit once you start. Over time, your savings will build.
4. Make it automatic
Create an automatic transfer from your checking to your savings. If you schedule this to transfer on payday, then you likely won’t even notice it’s gone.
You may have thought that saving or budgeting was not possible for you. But when you eliminate a small item that you have been spending lots of money on, you’ll begin to realize that you are now budgeting. When saving has become a new habit, you’ll notice how much easier it is to save for other goals. Most savings accounts will let you create sub savers. Name them after whatever your goal is. Start with emergencies, then move to fun goals like vacations, a new phone or even a spa day.