In a perfect world, we’d be able to budget our money masterfully, never having to worry about have too little.
But this is not a perfect world. At any point in time, you can get into a car accident, a tree can fall on your car or you can slip on a sheet of ice and hurt your back tremendously. These kinds of unfortunate situations are much easier to deal with when you have enough cash to cover unforeseen expenses.
Since that’s the case, you’d be wise to start saving some money in an emergency fund. That way, should something unexpected happen and you be in a pinch for cash, you’ll have it set aside so you don’t have to sweat it. Peace of mind, from a financial perspective, can go a long way toward helping you cope with unfortunate situations.
Once you’ve made the decision to start saving for an emergency fund, you’re then going to have to figure out just how much cash you should try to stockpile. While every person’s situation is undoubtedly different, generally speaking, you’ll probably want to set aside at least $1,000 — but the more, the merrier. That way, if you have unexpected medical bills or get into a car accident, for example, you’re able to more easily absorb the financial setback.
If you want to get even more comfortable, experts recommend that you should set aside up to six months of living expenses. That way if you lose your job or are otherwise unable to find gainful employment right away, you’ll have enough of a cushion to remain living relatively comfortably.
Ways to Save Your Money
Now that you’ve decided that it would be wise to establish an emergency fund that’s all your own, you’ll next have to figure out precisely how you’ll be able to amass $1,000. While some folks won’t have any trouble whatsoever coming up with that kind of money, for others, it could take a while—and rightfully so. One thousand dollars is a lot of cash, even if you’re rich.
With that in mind, let’s take a look at some ways you can go about setting aside cash to amass your desirable emergency fund:
- Collect your change. Fifty-three cents here, 70 cents there, nine cents there. Throw it all in a jar, and see how quickly it adds up. If you haven’t done so already, consider designating a change jar and start throwing your pennies, nickels, dimes and quarters into it. You may surprise yourself at how quickly that pocket change can turn into a nice lump of cash.
- Live frugally. If you’re trying to put together an emergency fund, you probably don’t want to buy an Apple Watch, for example. Which is by no means to say that you couldn’t get that fine piece of wearable tech at some point in the future. But if you want to put together an emergency fund, you’re going to have to live within your means. Try to spend as little money as possible without compromising on your comfort or health.
- Take advantage of credit cards. Folks who aren’t good at budgeting probably don’t want to get credit cards. But if you’re perfectly adept at only spending the money you make and not a penny more, you might want to consider taking advantage of credit cards that offer reward dollars. For example, the American Express Blue Cash Preferred card gives you 6 percent cash back on groceries, 3 percent cash back on gas purchases, and 1 percent cash back on everything else. In theory, the cash back you earn could be put toward your emergency fund.
The above list is by no means all-inclusive, but it should give you some sort of idea as to easy ways to assemble your emergency fund.
Where You Should Stash Your Emergency Fund
Once you’ve collected your $1,000, you’ll want to make sure to store it in a safe and secure place, i.e., not the stock market. You’ll also want to avoid buying bonds or CDs with it, as you’ll want it to be liquid enough that you can access it the moment you need it without any delay.
So if you’re a normal person, you might want to consider opening up a separate interest-accruing savings account that’ll solely house your emergency fund. Be sure not to comingle that money with your everyday spending money, as you’d be surprised how quickly those monies may appear to evaporate. Not only will your $1,000 be safe, you’ll also earn a bit of interest—and perhaps even more, as experts suspect Federal Reserve Chairman Janet Yellen will raise the nation’s interest rates at least once this year.
If you’re a bit of a kook, well, that’s fine too. There’s nothing wrong with sticking $1,000 in cash in a shoebox and hiding it in the corner of your closet or something of the like. Just don’t tell anyone about it, and no one will think that you’re crazy.
At the end of the day, you just need to stash your emergency fund in a place where the money is safe. Let’s hope that you’ll never need to spend it!