Military Saves Week: Day 3, Save For The Unexpected!
by johnnyc2id on Feb 27, 2019
February 25th to March 2nd is Military Saves Week, designed to help promote personal saving and reducing debt. Each day of the week will have a special focus and today’s focus is saving for the unexpected!
Mike Tyson famously said that everyone has a plan, until they get punched in the mouth. You may be doing some great things financially and following a great plan, but unless that plan has some resiliency built into it, you could be in trouble when you get the proverbial “punch in the mouth.” In the financial world, that resiliency can come from making sure you have an emergency fund. An emergency fund can be there to cover not only some unexpected expenses, but to also serve as a way to fill gaps in your income if you lose your job or suffer an injury or illness. A rule of thumb for emergency funds is to try and save enough to cover 3 – 6 months’ worth of expenses. If you are a two-income family, you can probably be closer to the 3-month amount, while single income families may want to be closer to the six-month amount. That said, don’t let the 3- or 6-month value overwhelm you. If you have the money to put into a separate account, great. If not, don’t stress, try to direct as much as you can afford on a monthly basis into the account, and let it grow untouched. Here are a couple other tips for your emergency account:
- Use a separate savings account as the emergency fund, and if you can, have the monthly deposits going into it automatically. I often recommend to clients to use an online savings account for their emergency funds, as you tend to get higher rates of interest than local brick and mortar banks can give. Magnify Money is a great site to check out to compare which banks are offering the highest interest rates AND how much “fine print” is on those accounts.
- Set a goal for yourself to contribute to the emergency account on a regular basis. You don’t need to get all 3- to 6-months’ worth of expenses in the account today. Every little bit can help reduce the stress of an emergency later.
- If you are having trouble finding money to save each month, check out this list of ideas on how to find ways of trimming expenses.
- Look to sources of unexpected or irregular income to deposit into the emergency account. This could be a tax refund, the deposit return from recycling cans/bottles, or even selling old/used items on Ebay.
It can be hard to fund and keep an emergency fund untouched as you work through your monthly finances, but try to keep in mind the goal of the account is to prevent having to take on debt or suffering even worse financial outcomes when the unexpected happens.
Good luck building your emergency account, and as always for more tips and resources, make sure you are checking out the Military Saves homepage!