Today we want to show you how to maximize your emergency funds. Emergency savings can help you when times are tough. But when times are tough, it can be hard to save enough. That can make it challenging to keep on track with your emergency fund, so here’s what you need to know. What’s the Magic Number for Emergency Fund Savings? A common rule of thumb found on the Internet today is to have three to six months of living expenses saved for a rainy day. While it may seem like an arbitrary choice, there’s a reason for it. It straddles the line between practical and achievable.
Three months of expenses is easier to save than other goals, like retirement. However, it gives you a solid backup in case you lose your job; you have three months to get back on your feet without worrying about your bills. Most People Need to Borrow Money for the Unexpected Unfortunately, few people have this amount saved. Roughly six in ten Americans can’t handle an unexpected $500 bill. Many of those without savings would have to use a credit card or borrow an online installment loan.
One of the potential benefits of borrowing online is that it gives you a backup in case your emergency fund ever fails. If approved, you can take out an installment loan to handle unexpected, unavoidable repairs and expenses. You’ll be able to pay it back over time, according to your lender’s predetermined schedule.
How Can You Avoid Borrowing Money in an Emergency?
An online installment loan can be a convenient alternative to emergency savings. But like any safety net, it should be there as a backup in case things go wrong; it’s not a permanent replacement for savings. Ideally, your emergency fund should be big enough to help you with the unexpected. If your fund is running low, check out these tips to help you bring it back up to snuff.
Use a Budget
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It’s hard to commit to your emergency fund without being intentional with your spending. You need a budget to create a plan that ensures you save some money every month. Keep an eye out for unnecessary subscription services, gratuitous takeout, and excessive shopping. Limiting how often you indulge in these treats can free up more cash for savings.
Make it Consistent
Your emergency fund has the greatest chance of growing when you don’t skip contributions. It’s easy to forget your plans to save when you’re busy, so take the burden off your shoulders. Set it up so that your bank automatically transfers your contributions to your emergency fund, without fail.
Sign up for an ESP
Another way to simplify your savings is through an Employee Savings Plan (ESP). This plan withholds a portion of your paycheck before it arrives in your checking account. Instead, it sends it directly to a specialized savings account.
Sink Windfalls into Your Fund
One of the best ways to give your emergency fund a considerable boost is with large, lump-sum deposits. These sizeable deposits can be hard to achieve with your usual budget. That’s where surprise windfalls come in. You can use work bonuses, tax refunds, and prize winnings to beef up your savings.
Choose the Right Account
Interest isn’t just what gets added to your installment loans or credit cards. You’ll also earn it on any deposits you hold with a bank. Most basic savings accounts make around 1% APY, so you’ll want to switch to a high-yield account to earn more. These tips can help you prioritize savings when times are tough.
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