As with many things, it’s better to be prepared than not. This article will teach you how much money you should have on hand for unexpected events and where that money can best be stored in a safe location.
The “where to put emergency fund” is a question that comes up quite often. There are many options for where to put your money, but the best option is to start an emergency fund.
What is the purpose of having an emergency fund?
Because things happen, and they may be costly.
Your kids wind up in the ER; your vehicle breaks down in the middle of New Mexico; your water heater breaks out. We’ve all had these setbacks and the expenditures that come with them. Some of us have had the misfortune of being laid off and being without pay for months at a time. Many individuals don’t prepare for emergencies in their monthly budget, so when things go wrong, they’re forced to rely on high-interest credit cards to pay their costs.
An emergency fund protects you and your family in the event of a disaster. There are two major advantages to having cash on hand to meet unexpected costs. First and foremost, it provides you with piece of mind. Rather of wringing your hands about where you’ll get the money to meet an unexpected bill, you simply transfer funds from your emergency fund to your bank account. The crisis was averted.
Second, and more crucially, it assists you in achieving financial success. An emergency savings fund will save you from digging yourself further into debt by preventing you from utilizing your credit card for emergencies.
Self-sufficiency provides a guy a sense of pride, which is an extra advantage of having an emergency fund. It’s unbeatable.
Where Should You Keep Your Emergency Fund?
Your emergency money should be liquid and available whenever you need it. While it may be tempting to earn a greater interest rate by investing in a CD or mutual fund, such savings instruments make it harder to access your money when you need it most. Rather, go with a traditional savings or checking account with a local or online bank.
Banks in the area. Because you presumably already conduct business with your local bank, it’s a fantastic location to keep your emergency money. Simply go to a bank and request that a separate savings account for your emergency fund be opened. It’s simple to deposit money into your account since you may do it in person. Make sure your savings account is linked to a checking account so you may quickly move emergency funds to your checking account as needed. The disadvantage of brick-and-mortar banks is that their interest rates aren’t very good, but that’s not a huge concern since we’re not attempting to make money off our emergency fund’s interest.
Banks that operate online. Because they often offer better interest rates and cheaper charges and fees than brick and mortar banks, online banks are a wonderful location to put your emergency money. Monthly interest rates on online banks like Ally were insane a few years ago, ranging from 2% to 4%, but they’ve now dropped to about 0.8-1 percent. Although not perfect, it is still superior than most conventional banks.
The most significant disadvantage of internet banking is its inconvenient nature. You can’t deposit money at a branch; instead, you must link your online account to a conventional bank. It might be tough to access your money if you don’t have a debit card for your online account. You’ll need to request a transfer from your online account to your conventional account and wait three to four business days for it to clear.
Personally, I see this annoyance as a useful barrier that prevents me from using my emergency money for things that aren’t really emergencies. However, do what works best for you.
Is it a good idea to store some cash beneath the bed? Keeping a portion of your emergency savings concealed in your home is a good idea. Banks and ATM machines may be knocked out by natural catastrophes and zombie apocalypses, shutting you off from your money for days or even weeks. It’s a good idea to keep $300-$400 in cash on hand. Keep it hidden under your mattress, in a fireproof safe, or even in your bug out bag. Keep your emergency cash in a concealed book safe for added style points.
What is the minimum amount I should have in my emergency fund?
When Kate and I were trying to get out of debt, we used Dave Ramsey’s Total Money Makeover as a guide. I’m sure Dave has his detractors, but his strategy worked for us. Before you start paying off your debt, Dave recommends setting aside $1,000 in an emergency fund. This manner, instead of adding to your debt by using your credit card, you may utilize this modest buffer for unexpected needs.
After you’ve paid off your debt, start saving for an emergency fund of three to six months’ worth of living costs. We’re just talking about the absolute essentials here. For most people, this equates to $5,000-$25,000. This fund is intended to cover most major situations and give sufficient funds to support you if you lose your work.
The first emergency fund goal is to raise $1,000 in a short amount of time.
Several times throughout our debt payback journey, our $1,000 emergency fund came in helpful. We had a few of emergency automobile repairs while I was in law school. We also had to make a couple of unplanned hospital appointments. We were able to pay for these charges using cash from our emergency reserve rather than using credit cards. There will be no new debt!
The objective is to have this $1,000 emergency fund established as soon as feasible. You’ll also want to have $1,000 in your emergency account at all times, so anytime you withdraw money from it, you’ll want to restore it as quickly as possible.
“OK, this sounds nice in principle,” you may be thinking, “but how am I going to scrounge together $1K when I’m barely scraping by as it is?”
I understand how difficult it might be to come up with $1,000. I’ve been there before. We started saving for an emergency fund when I was in law school. Kate and I both had part-time jobs, but we were barely scraping by. Regardless, we were able to build our $1,000 emergency fund in less than two months. The secret to swiftly building a $1,000 emergency fund is to 1) increase your income and 2) reduce your large spending. In a nutshell, hustle and sacrifice are required.
There are a slew of options for reducing costs and increasing revenue. It would take a whole article to list them all. So, here are some of the ways Kate and I were able to construct our $1,000 emergency fund. I’d be interested in hearing about what worked for you.
1. Hold a garage sale. Participating in a garage sale went a big way in helping us meet our $1,000 target fast. We took advantage of a yard sale hosted by Kate’s parents and sold all of the stuff we hadn’t used in months, as well as the gifts we’d received when we were married but had never used. We made around $250 at the end of the day, which we immediately put into our emergency fund savings account. The other benefit was that our home was cleaner and more organized without the extra clutter.
2. Use Amazon.com to sell your old DVDs, books, and video games. I’m a voracious reader. Reading is something I like doing. I used to go to the bookstore once a week in high school and college to explore and purchase a new book. As a result, I had accumulated a sizable collection of them. So I became an Amazon.com seller and listed all of my old books that I knew I would never read again.
It’s incredible how quickly the books flew off the shelves. Selling on Amazon or eBay, on the other hand, may be a hassle. I spent a lot of my weekends packing books and waiting in lines at the post office, but it was well worth it. My Amazon.com sales blitz netted me around $100.
When Kate and I decided to get serious about paying off our debt, I drastically reduced my book purchases and became a fervent library customer (I freaking love the library).
3. Disconnect the cable. Cable television is pricey, and let’s face it, most of the programs on it are terrible. Depending on how much you pay on your plan, cutting cable from your budget may easily save you $20-$100 each month. Check out Hulu.com if you’re truly anxious to see some of your favorite TV series. You can watch a lot of programs for free on there.
4. Get a part-time job or do odd tasks. I’m sure you have a lot on your plate. You most likely already have a family and a career. Maybe you’re going to school full-time while also working part-time. However, if you’re serious about putting your finances in order, you’ll be prepared to make the necessary compromises to get there.
You don’t have to be selective about the second jobs or odd tasks you take on. Personally, I believe that no job is beneath you as long as it is ethical and you put out your best effort. There are several flexible jobs available that you may work on weekends or nights. Deliver pizzas, bartend, serve tables, trim lawns, and work in the retail industry.
One of my friends was following the Dave Ramsey plan and needed to build his $1,000 emergency fund as soon as possible. So he went out and got some numbered stencils and black and white spray paint, and spent the weekend knocking on doors to ask if anybody wanted their address painted or redone on the curb. He demanded a fee of $10 for his services. He earned $400 in one weekend and got his $1,000 in one month. This man is a hustler to the core.
5. Spend your weekends at home. A typical Friday night out for Kate and me may cost $20-$50. We were able to donate $100 extra each month to our fund by restricting ourselves to one night out per month. We just had to be more inventive with our weekend activities.
6. Shop around for a lower car insurance quote. You’ve seen the TV advertisements stating that switching vehicle insurance policies may save you a lot of money. Don’t be afraid to take them up on their offer. To discover whether you can save $100 or more by switching to Progressive, State Farm, Geico, American Family, or esurance, go to their websites.
If you don’t want to transfer vehicle insurance, contact your current provider to see if they offer any responsible driving or customer loyalty discounts. You could also inquire whether you can lower your rate by paying a large payment once or twice a year rather than monthly. By switching, Kate and I were able to save roughly $100.
7. If you’re married, split the cost of a vehicle. This is something Kate and I have done since we married, and it is something we continue to do now. You save a lot of money on vehicle insurance, oil changes, and other auto maintenance and expenditures when you just have one automobile. It’s inconvenient at times, but it’s also a terrific way to spend quality time with your family. Really! Those vehicle drives to and from law school were the only moments each day when Kate and I could simply converse.
8. Gather all of your loose coins. I was shocked at how much money we were able to save by simply collecting all of our spare change around the home and in the vehicle and putting it into our emergency fund. Sure, you won’t be able to completely finance your $1K with loose change, but I’m guessing you’ll be able to gather approximately $20-$40 in a month. Every little bit contributes!
Here are 80 more money-saving ideas.
Goal #2 of the Emergency Fund: 3-6 Months of Basic Living Expenses
An emergency reserve of three to six months’ worth of living costs may seem to be a lofty objective. Saving $5,000 to $25,000 may seem hard if you’ve never had more than $1,000 in your bank account.
Don’t be intimidated by the size of the task. Small steps will ultimately lead you to your destination. Consider the magnificent, macho confidence you’ll have knowing you have enough money to withstand life’s storms.
Even though you’ll have more money, where you put your emergency fund shouldn’t alter. We still want these money to be liquid and easy to get hold of.
This is something Kate and I are currently working on. We’ll have to wait a bit to get there, but we’ll get there eventually. There are two factors that are assisting us in achieving our goal:
1. Put the money you were paying on debt each month into an emergency fund. As soon as Kate and I finished paying off our debt, we began placing the money we had been spending toward debt reduction into our emergency fund. We’re accustomed to allocating this money in our budget, so redirecting it to this new aim has been simple.
2. Automate your savings. Because I’ve set our savings on auto-pilot, I don’t have to worry about filling my emergency fund. I may automatically transfer a specified amount of money from my main checking account to my emergency fund every month using the ING Direct automatic savings plan.
In the event of an emergency, it is important to have a safety net in place. Having an emergency fund will help you get through those difficult times. The “$30,000 emergency fund” is a great way to start your own.
Frequently Asked Questions
How much does it cost to start an emergency fund?
A: It costs between $150 to start an emergency fund.
Is 2000 a good emergency fund?
A: Ideally, you should have 2000 in emergency savings. This amount would allow for about 3-6 months of living expenses if something catastrophic were to happen and you needed extra funds.
Where can I build an emergency fund?
A: If you are looking for a place to invest your emergency fund, the best option is an investment company. These companies provide access to investments that offer higher rates of return than savings accounts and bank deposits.
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