Crooner Perry Como鈥檚 final number-one hit in the U.S. was a song called 鈥淐atch a Falling Star.鈥 In the song, Como鈥檚 velvety smooth voice advises us to put the star we鈥檝e just caught in our pocket and save it for a rainy day. Depending on your line of work, rainy days probably don鈥檛 negatively affect your income. However, emergencies definitely can. When an emergency befalls you or your family, money is the last thing you want to worry about. With a well-stocked emergency fund, you won鈥檛 have to.
The Importance of Emergency Funds
You can plan your life鈥檚 course perfectly and work hard to achieve all the goals you set, but there will inevitably be things beyond your control. You鈥檙e also human, so you're going to make mistakes.
We can all plan on having a steady income, and even an increasing income, but life may have other plans for us. Any number of emergencies or significant setbacks might occur. These are situations such as:
- A medical emergency for you or a family member.
- A loss of job.
- A major home expense such as a new furnace or central air conditioning
- Property damage, such as a flood, fire, or a tree branch falling on your house.
This is why it鈥檚 crucial to have an emergency fund. Unfortunately, many of us don鈥檛. Only 54% of people in the United States have reserves sufficient to cover three months鈥 worth of expenses. If you鈥檙e part of the 46% without a rainy day fund, don鈥檛 panic. First, you have a lot of company. And second, it鈥檚 not hard to start saving. We鈥檒l show you.
8 Steps for Building an Emergency Fund
Here are eight steps you can take to save money for a rainy day:
1. Set a Goal
Determine how much you need based on your living expenses. Check your expenses for a three-month period and target that amount to save. Once you reach that target, why not double it to give yourself a healthy six-month cushion?
2. Assess Your Budget
Review your income and expenses and identify how much you can save each month without compromising essential needs. Consider cutting discretionary expenditures, at least while you鈥檙e building your emergency fund.
3. Open a Savings Account
It may be best to open a separate account for your emergency fund to avoid mixing it with other savings or spending. You don鈥檛 want to access the account often, but it must be accessible in an emergency, so it shouldn鈥檛 be money that鈥檚 completely locked away for a period.
4. Stay Consistent 鈥 Maybe Automate
Stay consistent, even if only $20 or $50 per month, and increase the amount as your financial situation allows. You can also set up automatic transfers to your emergency fund account to ensure consistency and reduce the temptation to spend.
5. Consider Adding Windfalls
Allocate bonuses, tax refunds, or other unexpected income to your emergency fund.
6. Track Progress
Regularly check your account to monitor growth and stay motivated to reach your goal.
7. Don鈥檛 Dip Into It / Replenish It
Reserve this fund strictly for genuine emergencies. If you need to use the fund, make it a priority to rebuild it as soon as possible.
8. Reevaluate Periodically
Review your emergency fund annually to ensure it still aligns with your current expenses and financial goals. Adjust the target amount as necessary.
M&T 萌妹社区 Can Help You Save for a Rainy Day
Whatever life throws at you, M&T can help you reach your financial goals when times are good, and we can help you accumulate a healthy emergency fund for life鈥檚 unexpected surprises.
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