What is the key to financial stability? Preparation. Without preparation, the smallest expense outside of your budget could throw your finances out of order and send you into a panic.
This is why you should set up an emergency fund. By preparing for the worst, you can be ready for any expense and protect your financial stability.
Living without Safety Nets
If you’re concerned that you don’t have an emergency fund already, you should know that you’re not alone. Research shows that only 41% of Americans would be able to handle a $1000 emergency expense by dipping into their savings alone. Most people are completely unprepared for any financial hiccup, whether it’s an urgent trip to the dentist or an unexpected plumbing problem.
What happens when something goes wrong? If you’re dealing with an emergency and you don’t have any savings to cover the costs, don’t panic — you have some options. You could contact a friend and ask them to lend you some money for the time being. As long as they’re financially secure, this is a good borrowing option that gives you a reasonable timeline to repay the costs.
Or you could try applying for a line of credit online. With a personal line of credit, you could cover the emergency costs quickly and then complete repayments later on. Since it’s a form of revolving credit, you could finish repayments and replenish the balance so that you can make withdrawals again in the future. Click here to learn more personal line of credit details and application qualifications to see if it’s the right choice for you. It could be a convenient safety net when you don’t have any savings to dip into.
How Do You Set Up an Emergency Fund?
If you want to make this safety net, you should start by opening up a high-yield savings account. This will be the perfect place to store your emergency fund and watch it grow.
You want to keep your emergency savings separate from all of your other funds. Mixing them with your monthly budget will make them hard to keep track of and easy to shrink.
After opening up the account, you should look into your budget to see how much you can set aside every month into the fund. If you’re not happy with the amount that you have available, you can always try to cut costs or increase your income to give your emergency savings a quick boost.
Finally, you want to set a target amount. How much do you think you should have in your fund? Your end goal could be $1000. It could be $2000. Financial experts recommend that you strive higher than that. They believe that you should aspire to have three to six months’ worth of your income in your emergency fund to help you recover from some of the most expensive problems that life can throw at you, including job loss and illness. This will take years to accomplish, but it will be worth the effort if a disaster ever strikes.
After you’ve done all that, all you have to do is commit to your goal. Keep adding savings into your fund. Keep watching it grow. In time, you’ll have an incredible safety net to fall back on when something goes wrong.