Almost 70% of Americans have less than $1,000 saved.¹
That means most Americans couldn’t cover unplanned car repairs, home maintenance, or medical bills without selling something or going into debt. They’re constantly living on the edge of financial ruin.
That’s where your emergency fund comes in. It’s a stash of cash that you can easily access in a pinch. You’ll be able to pay for that blown transmission without visiting a payday lender or selling your grandma’s silverware!
But here’s the catch: Your emergency savings account won’t help you much if it’s under-funded.
Follow these two rules to ensure that your rainy day savings can withstand the storms of life.
Rule #1: Only use your emergency fund for real emergencies.
I get it. Your emergency fund is an easily accessible chunk of money. Of course it’s going to be tempting to tap into it when you’re buying a new car or planning a dream vacation.
But your rainy day savings shouldn’t fund your lifestyle. They should protect it.
Think of it like this. Your vacation fund pays for your annual beach trip. Your emergency fund covers the bill when your car breaks down on the drive home. Only touch your emergency fund for unexpected expenses and enjoy the peace that comes from being prepared.
Rule #2: Always refill your emergency fund when it’s low
Ideally, your emergency fund should be stocked with 3 to 6 months of your income at all times. That should be enough to cover the gambit from small unexpected costs to a month or two of unemployment.
Don’t be afraid to tap into your emergency savings when you face unforeseen financial hiccups. Just remember to refresh your fund when the emergency has passed. The last thing you need is to be caught in the crosshairs of another crisis without a buffer.
Don’t let a financial storm blow you off course. Prepare for your future, and start building an emergency fund now. If you follow these rules, it can help financially protect you from the challenges life will inevitably send your way.
¹ “Most Americans Lack Savings,” Maria Vultaggio, Statistia, Dec 18, 2019, https://www.statista.com/chart/20323/americans-lack-savings/#:~:text=Dec%2018%2C%202019-,Personal%20savings%20in%20the%20U.S.,45%20percent%20have%20nothing%20saved.