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Abstract

ng-on-even-more-debt-2020-06-03">Nearly 25% of Americans don’t have an emergency fund</a> to bail them out of a sticky situation. However, based on your current job situation and your financial responsibilities, you can start to build a fund one step at a time.</p><h2 id="229f">How much should you have in an emergency fund?</h2><p id="85c0">On average, an emergency fund needs to have enough money to tide through 3–6 months’ worth of expenses. It gives you something to fall back on in case you lose your job. You should be able to keep yourself afloat for a minimum of 3 months with the amount saved in your emergency fund.</p><p id="df43">You can take a look at your current expenditures, the size of your family, your salary, how many cars you have, and whether you own or are renting a place to live.</p><p id="21fa">Additionally, suppose anyone in your family or anyone under your care has a history of medical concerns and ailments. In that case, you should have enough money to support them if an emergency occurs.</p><p id="198e">As per Statista, the <a href="https://www.statista.com/statistics/189963/cost-of-various-surgeries-in-the-us-2010/">cost of standard surgical procedures</a> ranges between $12,400 (for IVF treatments) and$ 170,000 (Cardiac surgeries). If you have health insurance, you can expect coverage for most operations and treatment procedures.</p><p id="56c7">However, it’s always good to have some cash that you can use if your insurance doesn’t come through. In this case, you can consider the average cost of healthcare procedures as a rough estimate for how much money you need to have in your emergency fund.</p><p id="32ef">Americans earn an average annual income of $63,000. It would put your monthly income at around$ 5,200. If you spend approximately 60% of your monthly income on regular expenses, you should aim to build an emergency fund of about $15,000.</p><p id="5909">It should be sufficient for 3 to 4 months worth of expenditures in case you lose your job. If you want to prepare for the worst, such as a medical emergency or urgent house and car repairs, we suggest putting aside$ 30,000 in your emergency fund.</p><p id="509d">Even if you start small, you can save up a significant amount of money if you remain consistent. <a href="https://www.investopedia.com/terms/e/emergency_fund.asp">Around 39% of Americans</a> wouldn’t be able to shoulder the expense of even $400 if caught off guard and would resort to loans and credit cards. So, despite only saving up a minimal amount, an emergency fund means you don’t have to take out unnecessary loans.</p><h2 id="6c84">How can you add money to your emergency fund?</h2><p id="2e30">The first thing to do is to establish a goal for how much money you want to save every month. As long as you have a definite idea of your monthly expenses, it can be easy to set a monthly saving target.</p><p id="5713">On average, American households <a href="https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/">spend around 62% of their income per month</a> you could potentially save up to 38% of your income and transfer it to an emergency fund.</p><p id="9847">Keep an eye on the money you’re saving at the end of each month and transfer it to your emergency fund. You can reexamine the total amount of money you have managed to accumulate after some time.</p><p id="a1b3">If you feel that you aren’t saving enough to reach the goal you have set, take a look at your expenses. Consider cutting back on a few things if it helps your savings and gets you back on track.</p><p id="9185">Additionally, whenever you have extra cash, add it to a savings jar in your house. When you’ve saved a substantial amount, transfer it to your emergency fund. Loose change usually ends up in th

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e pocket of your pants or on the laundry room’s floor, so even if it feels like an insignificant amount, it’s being put to good use if it ends up in your emergency fund.</p><p id="3b35"><b><i>Tip:</i></b><i> Saving for an emergency fund doesn’t mean you stop taking care of some unforeseen costs. For instance, fixing the leak in your bathroom as soon as it appears will cost you less than if you wait for it to exacerbate.</i></p><h2 id="a0a6">Where does an emergency fund go?</h2><p id="e2f8">Most banks don’t have a specific category for an emergency fund. You can opt for a savings account and set it aside as your emergency fund. You’ll need to go for an account with secure access because you have to be able to retrieve your savings on an urgent basis to deal with an emergency.</p><p id="f6c6">It’s essential to keep this savings account separate from your regular checking so you can remind yourself it’s only for emergencies. Having the same account for your emergency fund creates the temptation to use the money for discretionary purchases.</p><h2 id="c8e3">How much is too much?</h2><p id="c8cd">Contrary to what you may think, it isn’t smart to have too much stored away in your emergency fund. While the money you’ve saved is earning around a 1% interest rate, you also need to account for inflation. If the inflation rate overtakes you, your money’s value will steadily decline over time, leading to a loss.</p><p id="01b5">To avoid this, I suggest you steer clear of keeping a large amount of money saved over a long period. Instead, it would help if you considered investing it in something secure that allows your money to appreciate over time. If you need a little extra cash and your emergency fund is coming up short, you can always sell the asset.</p><h2 id="40f0">Businesses can also help their employees save up</h2><p id="3eef">Many businesses now help their employees set up a regular saving routine. If you’re a business owner and want to protect your employees against an unexpected financial burden, there are numerous plans you can put into action.</p><p id="4a08">For starters, some businesses encourage their employees to save by agreeing to provide them with an amount that is equivalent to their contribution to a savings account. If an employee added $100 to their savings account, you could match the amount with another$ 100, leading to quicker savings.</p><p id="0d14">There’s also the option of a 401(k) retirement plan, where employees agree to have a particular portion of their salary directed towards their retirement savings. In return, the employer contributes the same amount to their retirement account. Over time, this can accumulate into a significant nest egg.</p><h2 id="fa5d">In conclusion</h2><p id="7769">The idea of starting an emergency fund can be scary and intimidating at first. Knowing that you need to save enough money to support yourself and those under your care for several months can seem impossible when you’re starting from scratch. However, by making consistent additions to your emergency fund, you will be on your way to a more secure financial future.</p><p id="8d10">Remember, with the Coronavirus leading to high levels of job insecurity and medical emergencies, having some money saved up is a blessing, even if that means cutting down on unnecessary expenses in the short term.</p><p id="2529">For instance, reducing the number of take out food you order per week may appear insignificant initially. Still, when you add that money to your emergency fund, you’ll realize that even the smallest changes can make a big difference.</p><blockquote id="c9d0"><p>“Remember, when disaster strikes, the time to prepare has passed.”</p></blockquote><blockquote id="e1ce"><p>-Steven Cyros</p></blockquote></article></body>

FINANCE

Start Building an Emergency Fund

Small steps add up to positive differences

Establishing an emergency fund is more important than you might realize and easier than you might think.

“Unsuccessful people make decisions based on their current situations. Successful people make decisions based on where they want to be.”

-Quoteistand.com-

If there is one thing that the COVID-19 pandemic has taught us, it’s that life is unpredictable. Things may seem fine for a moment, only to turn chaotic in the next.

The outbreak has already resulted in numerous people getting laid off from their jobs in the United States and caused the nation’s GDP to fall by an overwhelming 32.9 percent in the second quarter of 2020.

In April, the unemployment rate recorded was 14.7%, and with the pandemic showing no signs of abating, we can expect significant economic turmoil during the remainder of this year. What’s even more worrying is that the pandemic effects have been even more devastating than those of the Great Recession, where 8.8 million people lost their jobs!

Even if you have a stable job, most of us are only one or two significant calamities away from losing everything we have worked to achieve. Unemployment isn’t the only risk you need to watch out for, as well. From health emergencies to your house getting burgled, there’s a lot that can happen to leave you in disarray.

So what can you do?

How do you prepare for an unforeseen emergency threatening to uproot your life and leave you and your family in a financial crisis?

You set up an emergency fund.

Having a source of money you can rely on during an emergency can alleviate your stress and help you cope with the situation without putting your family’s comfort in jeopardy.

You can start putting together an emergency fund right now, so you don’t have to go through what so many people are experiencing — this year more than ever.

Remember: An emergency fund takes dedication and commitment to build, but if you ever encounter a situation where you need funds, you won’t regret the effort you put in.

What is an emergency fund?

An emergency fund is a collection of assets that you can easily access when caught amid a financial emergency. Financial emergencies typically entail a situation where you require a large sum of money on an urgent basis. For instance, if a family member gets into an accident and needs money for surgery, an emergency fund can provide you with the cash you need to fund their treatment.

Emergency funds can also help you bear the necessary expenses and provide your family with the financial security they need while searching for a new job after becoming unemployed.

Nearly 25% of Americans don’t have an emergency fund to bail them out of a sticky situation. However, based on your current job situation and your financial responsibilities, you can start to build a fund one step at a time.

How much should you have in an emergency fund?

On average, an emergency fund needs to have enough money to tide through 3–6 months’ worth of expenses. It gives you something to fall back on in case you lose your job. You should be able to keep yourself afloat for a minimum of 3 months with the amount saved in your emergency fund.

You can take a look at your current expenditures, the size of your family, your salary, how many cars you have, and whether you own or are renting a place to live.

Additionally, suppose anyone in your family or anyone under your care has a history of medical concerns and ailments. In that case, you should have enough money to support them if an emergency occurs.

As per Statista, the cost of standard surgical procedures ranges between $12,400 (for IVF treatments) and $170,000 (Cardiac surgeries). If you have health insurance, you can expect coverage for most operations and treatment procedures.

However, it’s always good to have some cash that you can use if your insurance doesn’t come through. In this case, you can consider the average cost of healthcare procedures as a rough estimate for how much money you need to have in your emergency fund.

Americans earn an average annual income of $63,000. It would put your monthly income at around $5,200. If you spend approximately 60% of your monthly income on regular expenses, you should aim to build an emergency fund of about $15,000.

It should be sufficient for 3 to 4 months worth of expenditures in case you lose your job. If you want to prepare for the worst, such as a medical emergency or urgent house and car repairs, we suggest putting aside $30,000 in your emergency fund.

Even if you start small, you can save up a significant amount of money if you remain consistent. Around 39% of Americans wouldn’t be able to shoulder the expense of even $400 if caught off guard and would resort to loans and credit cards. So, despite only saving up a minimal amount, an emergency fund means you don’t have to take out unnecessary loans.

How can you add money to your emergency fund?

The first thing to do is to establish a goal for how much money you want to save every month. As long as you have a definite idea of your monthly expenses, it can be easy to set a monthly saving target.

On average, American households spend around 62% of their income per month you could potentially save up to 38% of your income and transfer it to an emergency fund.

Keep an eye on the money you’re saving at the end of each month and transfer it to your emergency fund. You can reexamine the total amount of money you have managed to accumulate after some time.

If you feel that you aren’t saving enough to reach the goal you have set, take a look at your expenses. Consider cutting back on a few things if it helps your savings and gets you back on track.

Additionally, whenever you have extra cash, add it to a savings jar in your house. When you’ve saved a substantial amount, transfer it to your emergency fund. Loose change usually ends up in the pocket of your pants or on the laundry room’s floor, so even if it feels like an insignificant amount, it’s being put to good use if it ends up in your emergency fund.

Tip: Saving for an emergency fund doesn’t mean you stop taking care of some unforeseen costs. For instance, fixing the leak in your bathroom as soon as it appears will cost you less than if you wait for it to exacerbate.

Where does an emergency fund go?

Most banks don’t have a specific category for an emergency fund. You can opt for a savings account and set it aside as your emergency fund. You’ll need to go for an account with secure access because you have to be able to retrieve your savings on an urgent basis to deal with an emergency.

It’s essential to keep this savings account separate from your regular checking so you can remind yourself it’s only for emergencies. Having the same account for your emergency fund creates the temptation to use the money for discretionary purchases.

How much is too much?

Contrary to what you may think, it isn’t smart to have too much stored away in your emergency fund. While the money you’ve saved is earning around a 1% interest rate, you also need to account for inflation. If the inflation rate overtakes you, your money’s value will steadily decline over time, leading to a loss.

To avoid this, I suggest you steer clear of keeping a large amount of money saved over a long period. Instead, it would help if you considered investing it in something secure that allows your money to appreciate over time. If you need a little extra cash and your emergency fund is coming up short, you can always sell the asset.

Businesses can also help their employees save up

Many businesses now help their employees set up a regular saving routine. If you’re a business owner and want to protect your employees against an unexpected financial burden, there are numerous plans you can put into action.

For starters, some businesses encourage their employees to save by agreeing to provide them with an amount that is equivalent to their contribution to a savings account. If an employee added $100 to their savings account, you could match the amount with another $100, leading to quicker savings.

There’s also the option of a 401(k) retirement plan, where employees agree to have a particular portion of their salary directed towards their retirement savings. In return, the employer contributes the same amount to their retirement account. Over time, this can accumulate into a significant nest egg.

In conclusion

The idea of starting an emergency fund can be scary and intimidating at first. Knowing that you need to save enough money to support yourself and those under your care for several months can seem impossible when you’re starting from scratch. However, by making consistent additions to your emergency fund, you will be on your way to a more secure financial future.

Remember, with the Coronavirus leading to high levels of job insecurity and medical emergencies, having some money saved up is a blessing, even if that means cutting down on unnecessary expenses in the short term.

For instance, reducing the number of take out food you order per week may appear insignificant initially. Still, when you add that money to your emergency fund, you’ll realize that even the smallest changes can make a big difference.

“Remember, when disaster strikes, the time to prepare has passed.”

-Steven Cyros