Retirement: Emergency savings
How do I start saving?
According to the 2014 Federal Reserve’s Report on the Economic Well-Being of U.S. Households, only 45 percent of respondents indicated that they had a “rainy day” or savings fund to cover three months of expenses and 53 percent indicated they would be prepared for a $400 unexpected expense.
Saving accounts are great to have; but, do you know how to start saving and how much should you save? A good place to start is to determine your savings goal. Do you want an emergency savings account? If so, what is an emergency savings account? Some define an emergency savings as an account that would be used in case of job loss. In this instance the account should have at least three to six months of your monthly expenses. Others define emergency savings as accounts for emergencies such as money for a car repair or hot water tank. In this case, it is a good idea to start off with a goal of $500-1,000 for unexpected expenses. Once you establish your emergency saving accounts, you can establish other savings accounts for other saving goals like down payment for a new home, car purchase, vacation, etc. In this case, it is important to think about how much you need and the timeframe in which you need it. For example, if I wanted to take a vacation 15 months from now and it cost $1200, I would divide 1200 by 15 to see that I need to save $80 per month to reach that goal.
The U.S. Navy offers the following creative tips for saving:
- When payday comes around, always pay your savings account first as though it were a regular bill. -Direct deposit is a great way to help you stay on track with saving.
- Save all of your change in a jar. This could pay for the expensive dinner or mani/pedi treat to you.
- Put any unexpected sums of money into savings (bonuses, tax refunds, birthday/anniversary checks, year-end bonuses, lottery jackpots!) –This will help grow your savings faster.
- Give up one trip to a fast food restaurant per week and make a sack lunch to eat instead. –Track your food spending and see how much you could add to your savings account.
- Make some family savings goals together (save for vacation, a dinner out, or a trip to an amusement park). –Have each member create their personal goal and save together.
By creating a spending plan and tracking your spending, you can create savings. Having a savings account can alleviate some of the stress that unexpected expenses bring. Take the savings assessment to see if you’re saving enough to meet your goals. Strive to create a spending and savings plan and implement your plans to reach your financial goals.
Michigan State University Extension offers workshops throughout the year to help you become financially healthy. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.