Sunday, April 22, 2018

Financial Education 101: Create a $1,000 Emergency Fund

46% of Americans in a 2016 Federal Reserve survey said they did not have enough money to cover a $400 emergency expense. What!?! I can mention three car repairs that I have had in the last three years that were all about $400, an exhaust leak, a new radiator, and new tires. Another example, go to the doctor for 2-3 visits for an issue, like breaking your hand, and it will easily be $400. Another great example, you do your taxes and find out you owe the government several hundred dollars. Maybe your house gets burglarized when you are on a business trip, and you need to buy some replacement items on short notice.

Point being, you don’t get to plan when you break your hand, or when your car gets an exhaust leak. Having $1,000 saved will allow you to weather all sorts of “minor” unexpected expenses that come up.

I have my emergency fund in an online bank earning 1% interest. I can easily transfer it to my checking account, and use a debit card or ATM to get at it, however it takes one extra step rather than just swiping my debit card. It's a small barrier that makes it a little harder to get to, and that’s kind of important, because you don’t want to be dipping into your emergency fund every month to make your rent or pay your bills, or go out to eat.

Open a savings account, put $1,000 in it, and then when a big unexpected bill comes up you will have a buffer. It’s as simple as that. 

It's okay to save more, and recommended later on when you've paid down some debt, but as a starting point, just get that $1,000 set aside.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.