"Starting An Emergency Fund"

 

 

Our piggy banks are squealing for some cash! Recent surveys indicate we aren't saving enough money for emergencies. If this includes you, SAVED BY THE BELL has some tips on how to get your piggy bank "oinking" with pleasure!

 

 

      

$AVINGS $ENSE:

READY OR NOT:

An improving economy has done little to help people prepare for a financial emergency. A survey by NeighborWorks America says more than 72 million people or one-in-three adults say they don't have any emergency savings. Who's most at risk? The highest percentages of households without any savings at all are African-Americans, adults with lower incomes and those with a high school education or less. 

 

CAN YOU STAND THE RAIN?

Who's doing the best job of saving money for a rainy day? Bankrate.com says more than one-third of middle-class Americans (households with an annual income between $50,000 and $74,999) are saving 10% of their incomes. That rate outpaces even the highest-income households. About half of Americans are saving 5% of their incomes and roughly 18% are saving nothing at all.

WORK TO DO:

One purpose of an emergency fund is to tide you over if you lose your job. According to March data from the Bureau of Labor Statistics, the average unemployed person was out of work for 31 weeks. Emergency funds can also help pay for unexpected expenses. Remember the record breaking cold on the East Coast this past winter? Pipes burst in my home on two different occasions! An emergency fund comes in handy for unexpected events like these.

 

CREDIT CARD BABY:

If you don't have an emergency fund, you may be tempted to reach for the plastic. Are you immediately paying the credit card bill in full? If not, this can be a very expensive way of dealing with a financial emergency. Don't throw away your hard-earned money! Creditcards.com says the average Annual Percentage Rate (APR) on new card offers is 14.9%. The APR on cash advances is 15.26%. While your credit card rate may be lower, these numbers highlight the need to set aside money for emergencies.

EMERGENCY (911):
Everyone should have at least 8 months of expenses saved in an emergency fund. If you’re a contract employee and your monthly income varies, you may want to save a little more in order to cover months when you’re working less and earning less. How do you begin setting up an emergency fund? Put together a list of all of your monthly expenses. How much is your mortgage/rent? What about your car note? How much do you spend each month on groceries/utilities?  Don't leave anything out. Need help adding it all together? Bankrate.com has a calculator you can use.

AUTOMATIC: 
Automatic deductions are a good way to keep your savings plan in line. If you don't have a checking and savings account, you should get both. Some experts even recommend having three accounts: one checking (for paying bills) and two savings - an emergency fund account and a savings account for long term goals (saving for a home, a car, etc.) Choose an amount to be deposited into your emergency fund account each time you get paid. Whether you start big or small, every penny counts. Nervous about getting your feet wet? Start small and deposit $20 a week into your emergency fund account. What about diving in a little deeper? Let's say you take home $1,000 a week. Transfer 10% of your weekly income, or $100 dollars into your emergency fund account. In 12 months, you will have $5,200. If you're ambitious - deposit even more! .

I CAN'T GET NEXT TO YOU:
What's the purpose of an emergency fund if you can't access the money quickly? Funds should be kept in a liquid account, such as a savings or money market account. The main drawback of both are the minimal returns. For deposits under $100,000, the FDIC says the national savings account interest rate is 0.06%. The rate for a money market account is 0.08%. Want more "bang for your buck?" High-interest savings accounts at community banks, credit unions and online banks are viable options. Gobankingrates.com's 10 Best Savings Accounts of 2015 ranked and reviewed savings accounts in the U.S. based on the following criteria: annual percentage yield (APY), minimum deposit to open, minimum deposit to avoid a fee and monthly service fees.  GE Capital Bank Online Savings and MySavingsDirect MySavings Account (both with a savings rate of 1.05%) tied for first place. To read more about the companies on the list, go to: http://www.gobankingrates.com/banking/10-savings-accounts-2015/
 
IT TAKES TWO:
Is it more important to build an emergency fund or pay down your debt? I say - both are equally important. If an emergency pops up and you don't have any money saved, you may end up charging your way out of the problem. If you put all of your money in an emergency fund and pay the minimum amount on your credit cards bills, you will never put a serious dent in your debt.  So - how do you tackle both? The SAVED BY THE BELL A+ PLAN will protect you from financial emergencies, while still chipping away at your debt. Here's how to do it:

Add: Tally up how much money you need in an emergency fund and the total amount of your debt.

Allocate: Set aside a specific amount of excess income each week/month to fund your emergency account and pay off your debt. The objective is to tackle both.
 

Alternate: Take turns which goal you will tackle more aggressively. Month #1: put a greater percentage of money into your emergency fund account, while still tackling your credit card debt. Month #2: increase the amount of your debt repayment, while still putting money in your emergency fund. Continue alternating the plan each month. 
 

Achievement: It takes patience to build an emergency fund, so celebrate each milestone! Milestone #1 – 1 month of emergency savings. Milestone #2 – 2 months of emergency savings.  Keep at it until you reach the suggested 8 month financial cushion. Once you get there, don't stop saving! Use the excess income for other financial goals you may have: such as paying off debt, planning for retirement, buying a house or a saving for much needed vacation.

Assess: The time may come when you will need to tap into your emergency fund. When should you do it? The answer may not be the same for everyone. Be honest with yourself: if it can wait, it's not an emergency.

 You've just been SAVED BY THE BELL!!