Knowledge for Life: With emergency savings, start small but think big
Having an emergency savings fund may be the most important difference between those who manage to stay afloat and those who sink financially.
That’s because an emergency savings fund allows you to meet unexpected financial challenges such as car repairs, traveling to see a sick relative, paying for a speeding ticket, or repairing a broken appliance. The emergency fund allows you to cover these expenses, and it gives you peace of mind that you can afford these types of financial emergencies.
Each year, those without emergency funds borrow $2 billion from payday lenders who charge 300-500 percent interest. Many experts suggest that the size of an emergency fund should equal 3-6 months of your salary so that you could continue to meet your monthly expenses if you lost your job. This is an excellent long-term savings goal, but it can seem like an overwhelming task if you are just starting to build your fund. Start with a goal of $500 and once you’ve reached that goal, keep saving until you reach that bigger goal.
An emergency fund should be easy to access in case of an emergency, but not so easy that you’ll be tempted to dip into it for non-emergencies. A savings account offers easier access to your money than a certificate of deposit, U.S. Savings Bond, or mutual fund. Emergency funds kept in a checking account or cash hidden at home may be tempting to use for non-emergencies, and won’t earn interest like a saving account will.
You may need at least $100 to open the savings account and a $200 minimum balance to avoid monthly fees. However, there are financial institutions with lower minimums. Be sure to keep your cash in a secure location until you’ve saved up enough to open a savings account. Once you’ve opened the account, keep making regular deposits until you’ve reached your savings goal.
There are many ways to find money to save — we just need the willpower and encouragement to put our money toward a savings goal rather than some other purchase. Consider these strategies for finding money to start your emergency savings fund.
• Collect loose change. Work as a family on a ‘feed the piggy bank’ challenge.
• Save a portion of your tax return.
• Bring soda from home rather than purchasing from a vending machine.
• Buy one less ‘fancy’ coffee per week.
• Pack your lunch instead of eating out.
• Switch to basic cable.
• Borrow books, CDs and movies from the library rather than renting or buying.
• Cut back on phone features.
Building an emergency fund may be easier if you involve your whole family in meeting this challenge. After you’ve explained the importance of emergency savings to your spouse or children, they may even help build the account and help find ways to save.
Another way to accumulate emergency savings is to ask your bank or credit union to automatically transfer a set amount of money from checking to savings monthly. Automatic savings is the easiest savings. What you don’t ever see, you may never miss.
For more practical savings tips, join the America Saves program. This free educational campaign is coordinated by the Consumer Federation of America (CFA) and is dedicated to helping individuals save money, reduce debt and build wealth. The program will help you identify and mark progress toward financial goals that you set. When you join, you will receive an America Saves campaign flier, a free subscription to the quarterly American Saver newsletter, and free monthly e-mail newsletters with savings advice from national experts. You will also receive access to the members-only “Savers Tracking Tool” to help you reach your goals.
For more information or to enroll, visit the America Saves website at americasaves.org/join.
— K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well‑being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus in Manhattan. For more information, visit the Leavenworth County Extension Office at 613 Holiday Plaza in Lansing, call the office at (913) 364-5700, or visit its website at leavenworth.ksu.edu.