Emergency funds are extremely important whether you are an individual or own a business. Managing your savings, however, is not always easy, especially when you are trying to pay down debt or have high bills each month. Here are several strategies to starting an emergency fund and budgeting your income so you can make the most out of your money.
An emergency fund can be used to pay for essential expenses and propel you through a tough time. It should cover your take home pay for at least three months, but ideally six. It might be overwhelming to take out a huge chunk of your income to put into savings, so saving a smaller amount regularly will make the task less daunting. By contributing a small percentage from each pay, you can meet your savings goals more easily, especially when you use direct deposit to automate your savings!
Whether you set a budgeting app on your phone, use Microsoft Excel spreadsheets, or write by hand, it is important to keep track of your monthly expenses. Knowing how much money goes in and out of your account each month, and knowing recurring expenses such as mortgage and utility bills, can help you create a better estimate of how much you are actually able to save. It also keeps you on track if you have the bad habit of spending spontaneously. If you’re wondering how much you should set aside, our Emergency Fund Calculator can help.
Aside from finding out how much you can save, find out how much you need to. Depending on your goal, you may need to save more than you think. For example, if you plan to take a two-week vacation in Europe, you would need to consider the cost of the flight there and back, a hotel stay, food, and sightseeing. Once you have an estimate of the trip cost, you will know how much you need to save from each paycheck to meet the date of your vacation.
Emergency funds need to be available when you need them, so using a retirement account such as a 401K in which your funds are locked is not a good idea. There are many saving options available to keep your emergency funds accessible in case you need it quickly, yet not too convenient to reach. After all, you don’t want to be tempted to dip into these funds when it’s not an emergency. Whether you’re looking for a savings account, a money market account, or a term share certificate, LUSO’s Member Service staff can help you find the best account to suit your needs.
Tax refunds usually get people excited as they wonder how to use their tax refund money. Instead of immediately spending it on things you didn’t plan for, save it. Putting that money into your emergency savings can give you peace of mind that your money hasn’t been wasted, but it allows you the excitement of knowing it is there for your future expense, whether it be your vacation, wedding, home down payment, or new puppy.
If you’re in the process of paying off debt, you might think saving should be postponed until later. Although it makes sense to aggressively pay down balances on credit cards or loans, it is still recommended to have even a small amount to set aside for savings. Find out the best way to pay off debt and set savings aside each month.
LUSO Federal Credit Union is a not-for-profit, member-owned financial institution that strives to provide customers and members with the best financial services and products. Our team proudly meets the financial needs of our members by helping them understand their financial situation, manage their income, pay off their debts, increase their chances of getting loans, and helping them build good habits for saving money. Our services and rates are available in Wilbraham and Ludlow, Massachusetts. To learn more about emergency savings, contact our Ludlow or Wilbraham branch at (844) LUSO-FCU.
