Nobody can predict when large unplanned expenses will land on your lap. Whether you need immediate surgery, lose your job or need urgent home repair, it’s always a good idea to have an emergency fund.
An emergency fund is a stash of money set aside for any financial surprises you may endure. Going through a major life event can be stressful and costly, but working on an emergency fund early can help lighten the load. Without the security of an emergency fund, you run the risk of going into major debt.
The total dollar amount will vary on the person, but it’s recommended to save at least three to six months' worth of expenses. If you’re living paycheck-to-paycheck, it may be challenging to put a bunch of money into your emergency fund immediately. However, saving just a few dollars a month is better than nothing. The earlier you can get started on building your emergency fund the better.
Starting an emergency fund can seem daunting if you’ve never worked on your savings before. Saving for the future doesn’t have to be difficult, so let’s get started.
Knowing the total amount of your monthly expenses is a crucial part of setting up your emergency fund. Keep track of all bills, grocery expenses, gas trips and other necessary expenses for the whole month.
Once you know what you're spending monthly, it’s time to start looking at where you can cut back on expenses. An easy way to keep your budget on track is to download a budgeting app on your phone so you can consistently see how much you’re spending and where.
Once you have a good idea of how much you spend a month, it’s now time to set a goal for your emergency fund. As mentioned above, experts recommend keeping three to six months’ worth of cash aside. For example, let’s say your monthly expenses totaled $2500. In this case, you’d want to set a goal between $5000 and $15,000.
There are several places you can keep your emergency fund, but one of the best places you can put it is in a separate high-yield savings account. You want the money to be there when you need it but not so accessible that you’re tempted to spend the money you’ve saved.
High-yield saving accounts allow for the money in the account to grow over time. Meaning the longer and the more money that sits in the account, the more interest you’ll gain.
Now that you know where you’ll keep your emergency fund, set up a good savings system. An easy way to do this is to set up automatic recurring transfers with your bank. This’ll allow you to build your emergency fund without having to pull the money each month manually.
Now that you’ve got a plan to build an emergency fund, you can sit back and monitor the progress. Some Veterans may decide to lower the amount they’re putting into their emergency fund once it reaches that three to six-month figure, while others will continue to grow theirs. Keep an eye on the account you set up and recognize how glad your future self will be if they need the funds.
In general, don’t be scared to use your emergency funds if you need to. Not everything will fall into the “emergency” category. But, even if it’s not a trip to the emergency room, your emergency fund could be beneficial in paying off a medical bill that your insurance doesn’t cover.
What is deemed an emergency may differ from person to person, but remember you set this money aside to prevent yourself from going into debt from an unplanned expense.
If you’re looking for urgent financial assistance and have not yet set up an emergency fund, there are a few options specifically designed for Veterans. Veterans Families United provides a list of emergency financial assistance for Veterans here.