In the article, 5 Budgeting Tips for Singles, Mary Hiers wrote a section on building an emergency fund. Having experienced a difficult summer of unexpected events, I understand how fragile our personal finances can be in the wake of "emergencies." The mounting debt and overwhelming challenge to maintain even the most basic of needs is a very real thing. Maybe you're in a situation where someone had lost their job, cannot get a job, had a health emergency, or any number of issues that add undue stress to our lives.
In this article, I would like to share a few ideas on how to build your rainy day account.
How Much Should I Save?
For years, I have been told to save at least six months salary for unexpected emergencies. I would still stand by that number. Although, truth be told, anything saved is better than nothing at all.
In the event that one should lose a job or decide to look for something new, the rule of thumb for how long it normally takes to find another job depends upon your salary. According to the Boston Globe, it will take "one month of job searching for every $10,000 of salary that you were earning." So, if your salary was $30,000 a year, then it would generally take about 3 months to secure another job. If you made $80,000 a year, then it would take about 8 months.
Can You Get To It Quickly?
One of the issues that I ran into this past summer was getting to the money quickly. Sure, I had money stashed away in saving accounts, stocks, life insurance, and even in other assets, but when I needed it, my options were few. Outside of the bank account, everything else seemed to take forever to access. While that may be wonderful for long-term savings, it did nothing for the immediate emergency needs. Shoot, I'm still waiting for a couple of options to finish liquidation.
Mint.com recommends putting this money into a money market account and high-interest savings account.
Start Saving NOW!
You never know when a situation will arise in your life. That's why it is important to begin storing some money away right now.
I can hear some of you saying, "...but I don't have any extra money." That may be true, but anything is better than nothing. Consider a few dollars out of each check. Maybe skip a few take-out dinners to begin. Whatever you can do, start doing it now. As you get better at saving, set a goal of at least 10% of your salary and pay yourself first.
Put It On Auto-Pilot
One of the easiest ways to build a substantial emergency fund is by opting into a direct deposit. At Wachovia (now Wells Fargo), there was an option to move money from the checking to savings account as purchases were made. The transfer amounts were minimal, but after a while it really began to add up.
By putting it on auto-pilot, you don't have to remember to do it or stress over the small details.
Well, that's it! Good luck and let me know how it works out for you.
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