There is no way to know what tomorrow will bring, but traditional wisdom says to expect the unexpected. So how do you plan for something unexpected?
The answer boils down to financial responsibility and having a backup plan in case you stumble along the way. As we all have experienced, most emergencies require some quick cash. The most important budget adjustment that you might make for the New Year is a dedicated emergency savings account.
Setting Aside for Savings
When you consider retirement savings, college savings or emergency savings, any number of savings goals are beneficial. Every family budget needs emergency savings separate from other accounts. If you don’t have money set aside, the time to remedy that situation is now. Keeping each financial goal separate lets you know whether you’re on track and discourages you from pulling from just one savings account for other expenses.
How Much is Necessary
Without being able to plan for something you never saw coming, all you can do is prepare for the worst that might happen. It’s the preparing part that’s so important. Keep in mind that a job loss or a large medical bill could be financially devastating. With a few months salary set aside, an unexpected occurrence won’t leave you scraping just to get by.
Finding the Money
Most families don’t have a surplus of income and most of it is spent on others, retirement savings and investments. One thing to consider is tracking all of your spending for one or two months. At the end of your tracking, take some time to examine where you money goes and find areas to cut back. Discretionary expenses, such as eating out, are totally within your control. You can control this spending to whatever degree you like and there lies your money for the emergency fund.
Saving Money Takes Time
Saving a few months salary in the bank is a tremendous goals, which is all the more reason to start as soon as possible. It takes time to build up what you might need.
To get started, think of a smaller goal that you can reach in less time. With emergency savings on hand, these trails don’t have to lead to late and missed bill payments. It helps prevent one incident from disrupting everything else.
How have you managed your Emergency Fund? Leave us a comment below or on Facebook (click here)!