The Price Makers presents: emergency fund rules that will help you reach your financial goals!
Take it from our experts: every financially responsible adult needs to have emergency fund rules. They’re important because they will get out of trouble in severe cases.
An emergency fund might go by many names, but it is fundamentally a must for everyone who wants financial security. Think of it like having a supply of emergency survival food in case of a natural disaster. For better or worse, it’s always good to have it, and it acts like a cash cushion against financial catastrophes such as being evicted, being in an accident, or losing your job.
If you respect these emergency fund rules, they’ll keep you afloat during rough patches. Maybe you were lucky to get through life without any devastating financial impacts, and you didn’t need an emergency fund. That’s fantastic, but take this article as a sign to start building one.
Are you ready to save? Here are some of the most important emergency fund rules you’re going to want to start working on. They’re approved by financial experts, so you know you’ll do the right thing. Let’s not keep this intro any longer and start talking about how to save money for the worst-case scenario!
1. The number of months worth of expenses
For many years now, one of the most popular emergency fund rules was that an individual should tuck away the equivalent of three to six months of their expenses into savings.
There’s also a different version, saying that it is better to save three to six months’ worth of your income so you can be covered in case something bad happens, like losing your job.
The amount of money someone wants to tuck away depends on their lifestyle choices and what their expenses would be in severe cases. While for some, six months’ worth of expenses or income is the sweet spot, others would find eight to 12 months more appropriate.
While it’s important to consider your expenses (bills, rent or mortgage, groceries, car payments, etc.), these emergency fund rules act as guidelines, so don’t feel bad if you can’t save as much as you would want.
Even a month’s worth of expenses, or a couple of hundred dollars stashed away for emergencies, is better than nothing. When you have more financial resources, you can add more, but until then, save the amount you can without feeling like you are restricting yourself.
Keep reading to discover all these emergency fund rules!
2. Have a saving goal
Even though these emergency fund rules say that you should start saving so that you’re always covered, regardless of any situation, don’t forget to be specific. If you only tell yourself that you just want to set some money aside, it is not going to last.
Financial experts say that you should give yourself a nominal and realistic savings goal for that special fund. You can write it down and work toward that goal because it’s going to keep you motivated and on track.
When you get close to reaching your goal, you can keep raising it; the key here is that you need a goal. This keeps you accountable, just like with everything else in life.
If you tell yourself that you want to save $1,000, you’ll be more likely to succeed, as opposed to saying that you just want to tuck some money away in case of something.
What’s great about these emergency fund rules is that banks and financial experts can help you with that too. For instance, there are plenty of financial companies and banks that offer free one-on-one consulting sessions with expert advisers who can give you their best tips on how to make your savings goals a priority.
If you have trouble following these emergency fund rules, check to see if your bank offers this type of service to help you be on the right path. But don’t forget to read our articles too, because we’re always here if you need any financial help!
3. Liquid money
While I support people who invest and encourage them to do it if they find something they believe in, you should also have some liquid money to make the most of these emergency fund rules.
Some people prefer to invest their savings, while others like to keep them under the mattress. Whatever you prefer to do, don’t forget that you still need liquid money for an emergency, such as a sudden illness, a layoff, or a car breakdown.
Let’s say that you have six months’ worth of expenses or income saved, but half of that amount is invested. There’s no problem with that, as long as you have a good chunk of cash at your disposal.
You should make sure that your savings aren’t at any risk (as they would be in the stock market, for instance). Roth IRAs, low-risk investments, and CDs are all great picks for emergency fund storage, but financial experts also recommend having a savings account for easier access.
Which one of these emergency fund rules do you think is the most important one?
4. High-interest savings account
If you follow these emergency fund rules, you’ll be golden! Even though I said that the money you set aside should be liquid, that doesn’t mean it has to be sitting around. Keep in mind that inflation isn’t your friend, and when that occurs, the value of your money might decrease.
With that being said, keep those potential changes in mind and think about how much a scenario like that could affect you. Financial experts recommend keeping those precious savings in a high-yield savings account (or other account) so that you can easily access them when needed and not pay any penalties for using the money before the term.
Other than that, look for the best deal available and do your research on banks that are known for offering the highest rates. Even if their rates aren’t at their best at the moment, there’s a high chance that the situation will change soon enough, and your money will be ready to earn interest.
5. Don’t forget your why
Here’s one of the most important emergency fund rules: don’t forget why you started your saving journey in the first place! Some people are very enthusiastic about starting an emergency fund and then completely forget what it’s there for.
Don’t make the same mistakes many individuals did, because it might compromise your goals. Keep your why in mind so that you’re always on track.
If you completely forget what your purpose is, you might be compelled to spend your money on unnecessary things, and that can become a real problem in case something happens.
Set aside some money for different purchases or expenses, such as a potential vacation, home renovations, or retirement funds, but don’t dip into that emergency fund to cover other expenses. Don’t forget to be honest with your financial goals, and you’ll be golden!
If you have a hard time following these emergency fund rules, adding some money every week or month to a piggy bank might be helpful. Start small, and then build up from there! Here’s a great piggy bank that will keep you motivated!
Did you find this article about emergency fund rules helpful? Leave a comment below and let us know what you think! If you liked this article and you’d like to read something else from The Price Makers, here’s a fantastic post for you to check out next: These Amazing 9 Coupon Sites Will Save You Hundreds
