With any luck, it’s working now. You receive a steady salary, pay your bills on time, and may have a little extra money left over.
But what if the unexpected happens? We all experience financial emergencies like major home repairs, medical bills, and even loss of income.
Lisa Gill, who writes about personal finances for Consumer Reports, argues that if you have an emergency fund to cover these kinds of unplanned expenses, you can save money from large debts that could easily escalate into a financial crisis. He says he can protect you.
Many financial planners say a good rule of thumb is to set aside enough money to cover essential expenses for three to six months. For housing, food, transportation, and debt repayment. So, work out what that would be on a monthly basis and multiply it by up to 6 to determine how much you need to save for your emergency fund.
Once you’ve set your savings goals, don’t let the numbers fool you. Whether it’s $5 or $10 a month, it’s important to start saving as much as you can. You’ll be amazed at how quickly it adds up.
With our online savings calculator, you’ll know how much you’ll need to save each month to reach your goals, and how quickly that money will grow.
Consumer Reports suggests putting that money in a high-yield savings bank or penalty-free certificate of deposit. Many of those accounts now have interest rates above 4%.
Make saving even easier by setting up automatic deposits or transfers from your checking account to your emergency fund. Track your contributions and keep them safe until you need them.
Building emergency savings should be at the top of your list, but you may have other urgent financial obligations, such as high-interest credit card debt. If so, paying off that debt should be your top priority. If you have low-interest debt, you can use some of your savings to pay off and the rest to an emergency fund to balance it out.