How to Start an Emergency Fund
Monday, October 31, 2016
Presented by Sara Frank-Hepfer, CFP®, AAMS®
 
You’ve probably been told at some point in your life that you need an emergency fund. The unfortunate reality is that many Americans don’t save for a rainy day, leaving them ill prepared for life’s misfortunes. Don’t let that happen to you. Having enough money set aside to pay essential expenses for weeks—or even months—can lessen the burden when the unforeseen occurs and help you stay out of debt. So what are you waiting for? These tips can get you started on creating your emergency fund.
 
Create a goal. First, you should decide how much money you would like to keep in the fund. We suggest that you set a goal to save three to six months of expenses (e.g., food, utilities, credit card payments, car payments). You should always plan to replace any money that you’ve spent, as it’s important that you commit to reaching your goal.
 
Revisit your budget. After you’ve set your goal, you’ll need to figure out how to reach it. Calculate your monthly expenses and determine a realistic amount that you can set aside regularly for your emergency fund.
 
Deposit a buffer. You aren’t expected to deposit three to six months of expenses at the beginning, but it’s still important for you to deposit a lump sum to get started. You also might want to deposit any extra money you receive, such as a tax return or a bonus check.
 
Find new ways to boost saving methods. Cutting costs is always a good financial move; however, in this case, it can allow you to deposit more into your emergency fund on a monthly basis to help you reach your goal quicker. Try keeping a loose-change savings jar, because every cent helps! 
 
Monitor your progress. Monitoring your progress toward your goal will help you stay motivated to continue saving. Account balance e-mails from your bank may remind you of the long road ahead and help encourage you to save more.
 
Automatic deposits. If it’s hard to resist the temptation to avoid spending your extra cash, consider signing up for automatic deposits. These will deposit a set amount each month and keep you on track by making your emergency fund a priority. The fund will feel more like a bill you need to pay instead of extra cash you could be spending at the mall.
 
Keep it accessible. It’s important to pick a bank and a program that will allow you to have easy access to your funds if need be. Consider a regular savings plan or a credit union, as they provide some return, and you’d be able to withdraw at any time with no penalty. If you’d like something with higher interest, consider a certificate of deposit (CD) or multiple CDs.  Certificates of deposits (CDs) typically offer a fixed rate of return if held to maturity, are generally insured by
the FDIC or another government agency, and may impose a penalty for early withdrawal.
 
Avoid higher-risk products. High-interest returns may seem alluring, but with high investment returns often comes with high risk. A lower-risk product may help you preserve your principal amount and contain less volatility than a high risk product.
 
Although it’s tough to think about having an unfortunate event happen to you, unexpected things happen every day. You could be laid off, fall ill, or get injured, no matter how cautious you are. An emergency fund will help ensure that you are prepared financially for whatever life events you may encounter. Once you’ve followed these tips to get started, contact us for more cost-cutting measures to benefit your emergency fund. 
 
Sara Frank-Hepfer is a financial consultant located at Financial Technology, Inc., 1500 Abbot Road, Suite 150, East Lansing, MI, 48823. She offers securities as a Registered Representative of Commonwealth Financial Network®, Member FINRA/SIPC. She can be reached at (517) 351-8600or at frank@financialtec.com.
 
© 2012 Commonwealth Financial Network®
 
This was printed in the October 30, 2016 - November 12, 2016 edition.
 
 

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