Emergency Savings: How to Save and When to Use It
We’ve been told time and time again we should have 3-6 months of income saved in the event of a financial emergency, but how do we save that money? And furthermore, when is it okay to use emergency savings?
Jump Start Your Emergency Savings
Here are some tips on how to get started:
- Think of your savings as a bill. “I must pay savings $50.00 every month.”
- Have some of your paycheck automatically deposited into a savings account.
- Use a separate bank/account for your savings and make it difficult to get to.
- When you pay off a debt, save the money you used to pay for that debt.
- If you get a raise or your income goes up, save the difference.
- Save your tax returns.
- Save your loose change.
Your savings goals are unique to you and your situation. Your goals can be short or long term; they can be big or small. Think about your savings goals and ask yourself these questions:
- Are my goals realistic?
- How long will it take me to reach my goals?
- Do I have enough extra money?
- Am I willing to make sacrifices to reach my goals?
When are you allowed to dip into emergency savings?
Emergency savings should really only be used in the following situations:
- You lost your job and need to continue to pay for basic living expenses such as housing costs and utilities.
- You have a medical or dental emergency... but only after checking to see if you can make payments.
- Your vehicle breaks down and it is your primary form of transportation.
- You have emergency home expenses such as the furnace breaking down, your roof is leaking, or the basement is flooding.
- You have a bereavement related expenses such as travel costs for a family member's funeral.
There have been several national news stories in the last year explaining that more than half of Americans can't afford a $400 or $500 emergency. That's scary because having nothing in savings can lead to financial crisis and/or accruing debt. So get started on your saving and make it a habit. It doesn't matter if it's small at first; just start.
Contact LSS at 888.577.2227 for your free financial counseling session. A counselor will create a realistic budget with you and help you determine how to save more. If you'd prefer, you can also get started online.
Author Katie Eastman is a Certified Financial Counselor with LSS Financial Counseling who specializes in budget, credit, and debt counseling.