Quick! Your kitchen pipes just burst and your plumber is quoting you around $400 to complete the repair. Could you do it? Or would you need to invest in a few solid buckets to get you by?
If the expense would be a stretch, you’re not alone. Research shows that nearly 40% of U.S. adults likely could not come up with $400 to cover an unexpected expense.
This is where an emergency fund comes into play. An emergency fund is a special savings account that you can build over time to cover yourself and your family if you’re strapped for money and need immediate access to funds.
If you don’t have an emergency fund and would like to have one, here’s a step-by-step guide that can help you set one up in no time.
What Is an Emergency Fund?
An emergency fund is meant to work as its name implies. This is money that you set aside in a special, dedicated account and promise to use only in the case of a real emergency. In other words, it’s not a catch-all account for casual spending or impulse buys, nor should it be used to cover the costs of vacations or other non-essential indulgences.
Rather, this money is reserved for unpredictable events that you can’t plan for long-term, such as a job loss, unforeseen medical bills, or costly home repairs.
Why Is It Important?
If you do not have an emergency fund in place, any degree of financial shock can set you back indefinitely, no matter how minor it might be.
If you’re unable to pay your medical bills, or you’re out of work for months, your mounting expenses could turn into debt. When this happens, it can be a challenging situation to overcome. You may be tempted to turn to credit cards or even your retirement account to help cover
An emergency fund allows you to address and eliminate these looming costs without going into the red.
How Much Should I Set Aside?
Most financial experts recommend establishing an emergency fund that holds between three and six months of savings. This way, if you had to, you could survive financially for up to half a year without regular income.
Understandably, this feat might not be realistic right now, especially if your bank accounts have lower balances than you would prefer. After all, it can take months to save enough money to cover even a few weeks of expenses, let alone multiple months!
As a general rule, start small. Aim to build your account up enough to cover at least one month’s worth of take-home pay. This way, you can build this account while still paying your bills, investing in your retirement, and paying down your debt.
What Savings Strategies Should I Use?
There is more than one right way to establish an emergency fund. Let’s take a look at a few of the most common strategies to use.
Start a Savings Plan
If you aren’t already saving regularly, now is a great time to start.
Set a goal for your emergency fund and establish a separate account to designate your money toward. Then, create a system that will help you stick with realistic contributions.
For many people, that means setting up an automatic transfer, where a portion of their paycheck goes immediately into their savings account or emergency fund each time they get paid. Others might choose to simply put allocate a portion of their monthly budget toward “paying themselves” and depositing money into that account.
Rather than fluctuating week by week, find a consistent and comfortable amount that you can stick to. This way, you’ll be more likely to stick with the plan!
Adjust Your Cash Flow
Your cash flow refers to how much money you’re bringing in each month, compared to how much you’re spending. Timing is paramount to keeping your cash flowing comfortably.
For instance, say your bills are all due at the end of the month, but that’s also when you get paid. It can feel as though all of your paycheck immediately goes out the door as soon as it comes in. This can make it more difficult to save money or contribute to your emergency fund.
If this is the case, check to see if you can work with your creditors (e.g. utility companies, mortgage companies, or credit card companies) to adjust the due dates of your bills to better optimize your cash flow.
In addition, be sure to take advantage of any one-time opportunities that you have to save. For instance, if your employer distributes bonuses at the end of the year, allocate some to your emergency fund rather than spending it all at once.
Leverage Loan Opportunities
Not every expense will be well-suited for a loan. However, there are lenders who will offer you short-term cash that can help you afford a cost without reaching into your emergency fund.
Secured loans, including car title loans, are those that require you to put down some form of collateral in exchange for the money borrowed. In the case of a title loan, this collateral is the title to your vehicle or motorcycle.
If you’re a Georgia resident looking to learn more about Atlanta title loans, we encourage you to learn more about how the process works. A Georgia title loan can help get you out of a temporary jam without falling into a mountain of debt or sacrificing the savings you’ve worked so hard to earn.
An Emergency Fund Can Make All the Difference
There’s nothing like financial security and freedom. When your emergency fund is healthy and established, you can rest assured that you’re covered, even if the unexpected happens.
Along the way, be sure to take advantage of all of your local resources designed to help you save money and live comfortably. If you need access to quick cash, our title loan program can help you move forward in confidence. To learn more about the car title loans Atlanta residents can access, reach out to our team.
When you’re ready, go ahead and apply! You can be approved in 30 minutes or less without a credit check. That makes saving for a rainy day a sunny prospect.