Building An Emergency Fund
What is an Emergency Fund?
Financial emergencies are going to happen no matter how well you plan or how much money you make. To help you during those situations, it's important that you establish an emergency fund.
An emergency fund is an account that is used to set aside funds to be used in an emergency, such as the loss of a job, an illness or a major expense. The purpose of this account is to create a safety net of funds that can be used to meet emergency expenses, without taking on high interest debt, such as credit card balances.
How Much Should I Have in an Emergency Fund?
So, how much money do you actually have to have in your emergency fund?
Most financial planners suggest that an emergency fund contain enough money to cover at least three months' of living expenses.
When creating your emergency fund, it's important to take a look at exactly where you're spending your money. Consider your regular monthly expenses, including rent, car payment, gas, groceries and utilities. Triple the total cost of these monthly necessities to get an initial goal for your emergency fund's balance.
Finding Emergency Fund Savings
Once you've determined how much you will need in your emergency fund, look at your monthly spending to find those extra dollars to start building it.
Perhaps you can reduce your expenses, postpone a new purchase or completely forgo unnecessary spending. Then, take that money you have just saved and pay it into your savings account every – just like you would any other bill.
Remember, the sole purpose of having an emergency fund is to help off-set unexpected expenses. To help you save, we recommend setting up a separate account that is not tied to your checking account or debit card.
BCU Rainy Day Savings Account
At BCU we have an account that can do just that, it's called the Rainy Day Savings account. Open this separate account to take "you" out of the savings equation and set up an automatic deduction from your paycheck or checking account into this Rainy Day account.
And, there you have it. All you need to know about creating an emergency fund. If you have any more questions or need more information, please visit the Life. Money. You. section on our website, www.bcu.org.