You’ve probably heard or read countless times that you need to save the equivalent of three to six months of your income in an emergency fund. Since the 2008 financial crisis, financial experts are now leaning toward the highest end of that range, and famed financial advisor, Suze Orman, has even been quoted as saying the target is eight months! There’s no question that can be an intimidating goal. So where do you begin, or how do you increase what you already have?
Calculate what six months of living expenses would look like. Review your past six months of spending or add up the last six months of your budget. (If you don’t already have a budget, we happen to have a few tips to help you get started.) Look at areas where you can spend less. Consider these small ways to cut back expenses and look at larger areas like carpooling to cut transportation costs, shopping around for better rates on your car and home insurance or cutting the cord on cable.
Don’t be discouraged if you don’t have a lot of extra money to save. Even $50 a week adds up to $5,200 in two years! [Subliminal message: you can grow your savings even faster with a First Internet Bank online savings account!] Supplement your savings by transferring extra money you have left in your checking account to your savings account at the end of the month. And start saving your loose change and small bills. If you receive a tax refund, put it into your emergency savings. The same goes for a work bonus — put part or all of it into savings. Have extra time on your hands? Start a part-time job and redirect your wages to build your savings.
Make it easy on yourself
Set up automatic transfers from checking to savings after each paycheck. Use a low-risk savings or money market account so you can easily access the funds when an emergency arises. Some people even build two emergency savings accounts — one for short-term emergencies like a broken furnace or car repairs, and one for long-term emergencies like job loss or illness.
Remember, an emergency fund is not a slush fund to cover things like a broken TV or spending too much at the mall – but real emergencies that effect your home, health or ability to work.
We’re always here to help you save! Open an online savings account account today.