While it’s certainly not the most glamorous financial topic, setting aside money for the unexpected is extremely important. Do you have a home? Kids? A car? Pets? How about bills to pay? Then guess what, you need an emergency fund. If you’re financially prepared for a worst-case-scenario, you won’t need to rely on credit cards or loans to keep your family afloat when the car breaks down or Fido gets into the trash (again). Most financial planners will say you should set aside three to six months of your salary by setting aside 10% of your pay for a while. That’s a pretty big chunk of change for most people, not to mention a range of thousands of dollars. If you have existing debt it can be even harder to set that money aside while still paying more than the minimum, so where do you start?
The very first step to planning and saving for your emergency fund is to determine your household’s monthly expenses. Start by sitting down with your bank and credit card statements, pay stubs and receipts to create a basic budget (check out last week’s Financial Wellness 101 on budgeting for tools, calculators and resources). This gives you a baseline for how much you’ll need to save. But where do you fall on that 3-6 month scale? Should you pay off your credit cards first? Where do you find the money to save from a paycheck that’s already spread pretty thin? Everyone’s situation is different but knowledge is power! Take a look at these hand-picked resources that will help get you on your way.
- People Like Me: In Case of Emergency Video (Vanguard)
- Interactive Savings Planner (Fidelity)
- Are You Financially Prepared for a Medical Crisis? (Vanguard Blog)
- How Big of an Emergency Fund Do YOU Need? (Quizzle)
- Easy Saving Strategies to Build an Emergency Fund (US News)
- Building an Emergency Fund (Investopedia via Forbes)
- 21 Strategies for Creating an Emergency Fund, and Why it’s Critical (ZenHabits)
- How to Start & Build Your Emergency Fund (Money Crashers)
- 5 Simple Ways to Boost Your Savings (About)
What about retirement savings? OFSB Retirement Analyst, Viviek Kumar, suggests paying off credit card debt before establishing major savings plans, however, he encourages eligible employees to contribute 3% to their Defined Contribution 403(b) plans before making room for emergency fund savings. The 10% match given by Georgetown along with the gains of your investment over time would yield a significantly larger return than the 1% interest your emergency fund would earn in a money market or savings account. Stay tuned to the Financial Wellness 101 series for more on retirement savings later in August.
Last Week: Budgets
Next Week: Savings