Ready for the fun part of financial organizing? Let’s set up your emergency account.
I’ve written about emergency funds before, so yours might already be done. If it is, see you back here tomorrow. Not done yet? Keep reading.
An emergency fund is a game changer. You will sleep better knowing you have a financial cushion if “life happens”. But more importantly, when life does happen (because it always does), you’ll pay for those little expenses from the bank of you, and you get the benefit. That means you won’t be paying interest to your credit card to pay for things like car repairs, frozen pipes, broken glasses, and other fun things like that.
Check over your income sources and bank accounts from the other day. Did you see an emergency account listed there? Do you have a secret stash squirreled away somewhere that you forgot about? If not, add a line to your spreadsheet under expenses, and then follow these steps.
- Set up a separate bank account somewhere,either your current bank, a nearby credit union, or an online account like Ally Bank or Vanguard. It should be close but shouldn’t be too easy to get to.
- Fund this emergency fund with a small amount to start. $5 is fine. $50 is great. Start with something easy, even if it seems inconsequential.
- Contact your payroll department and setup direct deposit into your new emergency account. I don’t care if it is only $5 a month. Start there. By this time next year, you’ll have $60 in your emergency fund. That’s more emergency money than some people ever have.
- If you can’t do payroll deduction, then see about doing an automatic withdrawal from your main bank account. It works the same way, but you’ll contact your bank about making this automatic payment from you…to you.
- Over time, increase the amount you are having deducted or transferred. It’ll be easier once you get started to up the ante.
- You want an amount equal to 3-6 months of expenses, but that may seem too big. For now, just work towards saving $1,000 in this account, even if it’s only $10 at a time.
Honestly, you can get this started in about 30 minutes. Some folks put it off for years. But once you get this emergency fund started, it will be tons of fun to watch it grow. Just remember, this money is for emergencies (not emergency shopping trips or emergency plane tickets to the beach, but real emergencies).
The average personal savings rate in the United States is about 5 percent, according to the Bureau of Economic Analysis. Only 38% of Americans have an emergency fund to fall back on. But since YOU are smarter than the AVERAGE bear, you can do better, getting to a fully funded emergency account in no time.
Even better, if you want to save $2,014 this year, please be sure to jump over to The Centsible Life and sign up for the challenge.
Did you do it? Did you set up your emergency account for the very first time? Let me know so I can do the happy dance here for you!
This post is part of my 31 days of 30-minute Organizing Projects. Be sure to subscribe for daily projects you can complete in just a few minutes to start your New Year off right.