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5 Tips for Saving for the Unexpected
Life is full of surprises. Unfortunately, not all of them are positive. In fact, some of life’s curveballs can be particularly impactful—both from an emotional and financial standpoint. Whether it’s suddenly facing unemployment or dealing with a health emergency, the only real way to soften the blow is to be prepared for the unexpected.
One way to do this is by building an emergency savings fund. By putting money aside on a consistent basis, you can face complicated situations without dealing with the added worry of figuring out how to pay for them.
How to Build and Maintain Your Emergency Savings Fund
Saving for something that hasn’t happened yet—and may never happen—might feel counterintuitive. However, it could save you having to take out a loan or compromising on other financial goals in the future. To make saving easier, we’ve come up with five easy steps to help you set up an emergency fund without getting in the way of your usual spending habits.
1. Set Up a Monthly Budget
Start by doing an in-depth review of your finances. You can ask yourself three key questions:
- How much money comes in every month?
- Which of your expenses are set in stone?
- Are there any items you can cut back on?
These questions will help you get a clear picture of how much money you’ll need on a weekly or monthly basis.
Once you know how much money you’ll have left after your planned expenses, you can add a line item to your budget for the amount you want to put into your emergency fund. Remember, it doesn’t have to be a large contribution. If you only have an extra $10 in your monthly budget, make that your starting point. Over time these regular deposits will add up, especially if you put them into a savings account with a high interest rate.
2. Open an Account that’s Separate from Your Day-to-Day
It’s always a good idea to have a savings account that’s separate from for your emergency fund. That way, if you tend to overspend or make impulse purchases, you won’t be tempted to put the money towards a new television or a must-have pair of shoes.
If you’re going to start small, choose an account with a low minimum balance and a high interest rate. This will allow your savings to work for you as you continue to build them.
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3. Automate Your Deposits
Once you've set up a designated account for your emergency fund and decided how much you can afford to put away every month, you should set up automatic transfers. This will help you make saving a habit without having to remember to make deposits at regular intervals. By matching your contributions up with your pay days, you can avoid the risk of overdraft fees.
4. Prioritize Your Savings
An easy way to supplement your emergency fund is by making it a priority when you receive any unbudgeted income. Any time you have access to a little extra cash (e.g. your tax return, a work bonus, cashback from your credit card), earmark a portion of it for your emergency fund.
5. Review Your Contributions
There’s no hard rule for how much you should be putting into your emergency fund at any given time. If you’re in the middle of saving for a down payment for a house, you may want to prioritize your saving activity for that. On the flip side, if you’ve just received a raise at work, you might want to consider increasing how much you contribute to your emergency fund.
Saving for the unexpected may seem daunting. But with some money set aside each month, you can always rely on the fact that you have a fund dedicated specifically for emergencies. At the end of the day, that peace of mind is priceless.
At Citadel, we’re here to help you prepare for the future. Contact us today.