KNOXVILLE (WATE) – You never know when life may throw you a curve ball, especially when it comes to an unexpected finances.
Everyone has needs and desires when it comes to spending money, and while your savings goal depends on your income and expenses, wealth strategists say it’s important to start building an emergency fund with a specific goal in mind.
The general rule of thumb is to save enough to cover four to seven months’ worth of expenses. Debt relief experts say when you face a financial emergency, you don’t fund vacations, fancy new clothes, dining out or other luxuries. That emergency fund is set aside to cover normal expenses until you can get back on your feet.
Financial analysts recommend making small goals at first and working your way up to a reserve to cover several months’ worth of expenses.
The next thing you want to do is decide where you will keep the fund. Your emergency fund should be easily accessible, but not so accessible that you’ll be tempted to make withdrawals for everyday spending. Start an account away from your normal checking account. That helps build a psychological wall between your spending habits and your emergency fund. Credit unions work well because they normally allow you to start with smaller amounts of money.
Remember to establish a monthly savings goal and make it part of your regular budget. Consider setting up an automatic monthly transfer, just as you would with your electric bill or rent, to ensure the money is saved each month. Paying yourself first through a direct deposit from your paycheck into your emergency fund account will help you build your fund steadily, but make sure you’ve created a balanced budget so that you save the appropriate amount.
Investment experts say that emergency fund is for the “unexpected, for example, appliances that stop working, getting laid off from a job, a long illness or expenses you cannot foresee.
One of the most common problems people have with emergency funds is forgetting to plan for one-time expenses each year. An example would be to make sure you budget for an annual insurance expense or car expenses.
As the saying goes “Rome wasn’t built in a day,” and neither is an emergency fund, so take it slow. Any action you can take to establish an emergency fund will do you good. If you transfer $10 to a savings account each week, you’ll have $520 in a year.
So, don’t be afraid to start with a small amount of savings each month, then try to increase it whenever possible.