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The only certain thing in this life is uncertainty. Financial surprises happen to all of us, which is why building an emergency fund is so important. Emergency funds should be in a high-interest savings account with a higher APY than a typical savings account, making it a better option for long-term asset storage.
While your regular savings account might have money that can be transferred to your checking account on a whim, the assets in an emergency fund should be used as a last resort. If the only other choice is to go into the red or fall into credit card debt, that’s when you’ll be relieved to have your emergency fund as a buffer.
Emergency funds act like a buffer, preventing you from falling into debt should a large, surprise expense come along. These funds can also come into play should you lose your main source of income. This is why experts suggest saving the equivalent of three to six months of expenses in an emergency fund.
A broken-down car or an unexpected medical crisis can easily send individuals into a cycle of mounting debt. An emergency fund can prevent that from happening.
Don’t overlook the peace of mind an emergency fund can provide you. Nothing is ever certain, so emergency funds can give you confidence in case of a surprise lay-off or medical bill. The best part? Starting an emergency fund doesn’t have to be complicated or costly and can be started today!
If you’re interested in starting an emergency fund, there are a few steps to take before you start allocating funds. First, you’ll want to figure out how much money you can put away monthly. Remember to keep your goal in mind. You’re shooting for three to six months of expenses. Then you’re ready to get started by choosing a savings vehicle, setting a goal and setting up your contributions. Find out more about how to build an emergency fund by reading each step below.
Taking stock of your financial situation is an important step in setting up an emergency fund that will help you in a crisis. Don’t overlook these important steps while planning your fund.
Now that you better understand your financial situation, you’ll know how much to save and how much you can set aside every month. Here are a few considerations while building your emergency fund.
There’s a reason saving cash under a mattress isn’t recommended. When you’re saving long-term, it’s important to choose a savings vehicle that has a high enough interest rate that will keep up with inflation rates. Below are a few savings options you can consider for emergency savings.
Need help deciding how to save? As a non-profit credit union, DCU is all about educating members for better financial health. See if membership is right for you and get a little extra guidance on your saving journey.
We can say it’s simple to open a savings account, but finding the money to set aside can be tough, especially if you’re already in debt. However, the long-term benefits of having an emergency fund will be worth it the next time you hit a fiscal hurdle. Here are a few tips to help you find a little extra cash to put away for your fund.
When you’re building your fund, you’ll want to regularly check in. If you’re automatically transferring funds, this practice will make sure the transfers are occurring as they should.
Even if you’ve reached your financial goal and your emergency fund is where you need it to be, you don’t want to forget about it. Revisit your financial situation. Maybe you have a growing family and need to account for more dependants. Maybe you got a raise and can afford to put more money away — shoot for six months rather than three. There are plenty of reasons to reassess how much money to keep in your emergency fund.
Having an emergency fund can change your whole financial future. This fund can protect you from falling into debt or help you stay current on mortgage or rent payments in times of fiscal strife. There’s no better time to start taking steps toward getting started than here and now.
DCU is always there for members, happily providing guidance on fiscal planning. Learn more about becoming a DCU member. There, you can find guidance as well as a high-yield savings account, money market account or a CD to get your emergency fund started.
Please note, membership is required to open a DCU savings account. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
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