Reading up on emergency funds is like doing research on home window installations; almost no one does it for pure enjoyment, but everyone knows you have to do it at some point. Fortunately, creating and fulfilling an emergency fund doesn’t have to be boring or complex. With these four simple steps, you can map out your entire emergency fund in a single afternoon.
1) Identify the Number | What is an emergency fund? Simply put, it’s an intentional, separate savings that’s kept for the unexpected, and only the unexpected. Most financial professionals would suggest starting with $1000, then building it even more after paying off debts. Let’s face it: car accidents, health issues, and unforeseen bills can arise at any time. Even if you’re a highly prepared individual, you’ll still encounter emergency scenarios a few times in your life, and it’s wise to have a financial safety net.
The reason $1,000 is recommended is because it’s large enough to be useful, but small enough to be reachable. Even if you save in small chunks at a time, such as $100 per month, you will attain your emergency savings in less than one year.
2) Start With A Single, Intentional Deposit | Nothing makes climbing up a mountain easier than getting firm footing, and the same is true when saving money. Rather than seeing your emergency fund as a dull, difficult task, take $100 today from your checking account, and open up your emergency savings account. Acting with a healthy sense of urgency allows you to build momentum before it becomes easy to make excuses.
3)Set Up An Auto Transfer | As is true with saving money in general, you employ every advantage when you create an automatic transfer for your emergency fund. When you log into your bank account next, look for a tab labeled “Transfers”, or similar verbiage. Most banks these days allow you to set up automatic transfers without additional approval. Once you decide on an amount, confirm the transfer at your desired frequency, and let technology go to work for you. Once this process is rolling, your emergency fund will be growing effortlessly.
Another option is to connect your bank account to an automatic savings app. Each app offers distinct features, but they are easy to use and offer further compartmentalization of your money, which can make it less tempting to “loot” your own savings.
4) Keep it Protected | Needless to say, an emergency fund should not be meddled with once you complete it. If you’re the type of person prone to reach into that account when there’s no emergency, there are a variety of solutions you can implement.
First, you can open a savings account in a local bank. While the interest rate may be next to nothing, the advantage is that local banks can usually provide faster access to physical money – when an emergency has actually happened. In my experience, they’re also less likely to be crowded at any point of the day, which never hurts.
Second, an online bank – separate from your checking provider, of course – may be a great fit. Online banks typically provide the same ease of access to your cash when truly needed, and sometimes have tech-savvier options than local banks. They’re also likelier to pay higher interest rates, adding more to your existing savings over time.
Out of the Bible’s many references to money, Galatians 6:5 shows us that “each will have to bear his own load”, reminding us that no one will create that emergency fund for us. God is our ultimate provider, so if we are managing the resources He has entrusted to us wisely, having an emergency fund is a great first step for avoiding future financial hardship.
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Written by Financial Stewardship Volunteer Brad Johnson.