According to a 2018 Federal Reserve study, 1 in 4 Americans don’t have $400 in emergency savings. That means if they had an unexpected expense such as a medical emergency or car repair, they would have to turn to debt to cover the cost. The additional debt just leads to more financial instability as struggling families must find ways to make the additional payments. You can see how all of this becomes a vicious cycle.
You must have an emergency savings account!
Your financial stability depends on having an emergency savings fund. It doesn’t have to be massive. Start small and let it grow over time. Your first savings goal should be $1000. With just $1000, you can cover many car repairs and can handle an urgent care visit… all without needing to borrow money or turning to high interest credit cards.
Grow your savings over time.
Once you’ve established your emergency savings account, keep adding to it until you have 3 to 6 months of expenses saved up. At that level, you can weather a short loss of income like a lay off at work or a hospital stay.
If it’s not an emergency, don’t touch the money.
Seriously! It’s called Emergency Savings for a reason. Repairing your car so that you can commute to work is an emergency. Paying for medical expenses is an emergency. Buying a new flat screen TV is not an emergency, even if your only TV fell off the wall and shattered. Basically, if the expense doesn’t help you get to work and pay the bills, keep you and your family healthy, put food on the table, pay the utilities, keep a roof over your head, or meet any other fundamental requirement to live, it’s not an emergency.
If you use it, pay it back!
If you do need to dip into your emergency savings account, pay it back as quickly as you can. You’ll need that money soon enough. Life has a way of happening just when we expect it least and your emergency savings fund helps to smooth out those bumps in the road.