Finances could be described as a tightrope walk. As long as you carefully walk the line, you’ll be fine. But one wrong move could throw you off balance and send you falling to the ground. The best thing that you can do to protect yourself is to put out a safety net to catch you whenever you fall. This is why you need to establish an emergency fund.
Emergency Fund 101
An emergency fund is a savings fund that’s specifically designed to help you recover from critical, unexpected costs. Your car breaks down. Your toilet overflows. Your pet has to be rushed to the vet after swallowing something that they shouldn’t have. These problems are unpredictable and need to be resolved right away.
Financial experts recommend that you have at least three months’ of take-home pay sitting in your emergency fund. It’s an ambitious goal, but the reserves will help you cover just about any mishap that comes your way.
What Can You Do If You Don’t Have an Emergency Fund?
Put It on Credit
You could put the expense on your credit card and figure out how to pay it off later. The consequence of this is that your credit comes with interest and potential penalties. It’s also not an effective solution when you’re close to your limit.
Ask a Friend
According to Bankrate’s Financial Security Index Survey from this year, 14% of respondents would borrow money from family members or friends if they had to deal with a $1,000 bill from an unexpected expense. It’s often the go-to answer for people who don’t have the savings or credit to cover the bill.
You should know that borrowing money from a close friend or relative can backfire. A report from Bank of America found that more than half of consumers had friendships end over money that they loaned out. Every time you ask someone for an IOU, you risk hurting your relationship.
Find an Alternative
If you can’t turn to your credit card or your friends for help, you may go to MoneyKey.com to help you cover the costs of your unexpected emergency expenses. They offer installment loans that you can access in a short amount of time. Sometimes, you can receive your funds as early as the next business day, if approved.
You don’t have to jump through hoops and wait for weeks to get a response. You can do it all online and have the funds ready quickly so that you can recover from your emergency and get back to normal.
Millennials on the Edge
You’re not the only one dealing with this problem. According to a Modern Wealth Report by Schwab, over a third of millennials don’t have funds set aside in case they have to deal with any unexpected emergency expenses.
It makes sense that the demographic wouldn’t prioritize this type of savings plan when they’re busy paying off student debt and struggling to cover everyday expenses. But, living paycheck to paycheck is exactly why you need an emergency fund on hand. Without one, it will be tough to recover from a fall.
How to Establish An Emergency Fund
Now that you know what your alternatives are if you don’t have the savings you need, you probably feel motivated to establish an emergency fund. One thing you can do to build up your rainy day fund is to find ways to save more money. If you save money in your daily life, you can put that towards an emergency savings account.
Start small. Adjust your budget so that you can set some money aside in a savings account. Or, if you’d rather use cash, put bills into a jar or envelope and store it in a safe place. Keep this habit up every week.
The most important rule to follow is that you should never touch it if you don’t have to. It won’t grow if you keep dipping into to the account when you don’t need to.
With Trim, you can actually save money on your monthly expenses such as utilities, subscription services, and other recurring bills. Trim safely syncs with your email, analyzes your spending, and negotiates on your behalf to find you savings. You can take the extra money that Trim saves you and build an emergency fund! Easy peasy. Sign up for Trim today.
Without a financial plan that includes an emergency fund, something simple like a car repair can ruin your finances. Now that you know why and how to establish your savings, go do it!