How to Start an Emergency Savings Account

An emergency savings account may just be one of the most important savings vehicles available to you today. It is the most important step you can take, in fact, in managing your finances. No matter who you are, what you own, what you owe, you need this type of savings. It protects you from all of the twists and turns in your financial life. But, how? How can you go from being broke to putting money aside?

Realize the Importance

The first thing to do is to realize just how important this type of savings tool really is. Unlike anything else, it will provide you with the protection you need from whatever lies ahead. Here are two scenarios as examples. Your goal in both is to stop using credit and to build a strong financial future.

1. You have no savings account. The car breaks down and requires a $1000 repair. You need to be able to get to work to earn money. You could use a payday loan, but that’s incredibly expensive and it makes it harder to repay all of your other debts later. You could use a credit card. That’s just going to put you farther into debt.

2. You have a savings account. You can take that $1000 out of the savings account and use it to make the repairs. There’s no additional cost from these loans or credit usage and your are still on your way to paying down your debt.

From big emergencies to small-unexpected payments, you need to have the funds to get through. If you want to avoid using credit cards due to the debt often create, having an emergency account is necessary. What’s worse is not having an emergency account or having access to credit. What would you do then?

Find a Bank

There are a few rules to remember about your emergency savings account.

1. You need to put money into a bank account. You do not want it sitting around the house. Even if it does not earn you must interest, you need to be able to have it some place you can get to it when you need to, but far enough away that you can’t get into it for non-emergency uses.

2. It’s best to not have a debit card for the account. It helps to restrict your access to the money so that you don’t blow it on the wrong thing.

3. Don’t use the account for anything else. This is not the place to pay debts or bills.

4. It’s untouchable. Don’t use it unless you absolutely need to – as in the car broke down, the toilet is overflowing or your child needs to go to the doctor. Only true emergencies should ever be considered as acceptable uses.

5. Make a rule that both parties (in cases of spouses or significant others sharing the account) must agree on the usage of the funds and the goal of keeping it in place. No one person can access the funds.

Once you do this, the next step is to find the cash to put into the account. That’s the hard part, you thought?

10 Ways to Fund an Emergency Account

How can you fund your emergency account? You can barely pay your bills! Here are some simple tips that work.

1. Set up your emergency account at the same bank you are using as a regular bank, where your paycheck is automatically deposited. Set it up so that the bank takes $20 out of your paycheck every week or month (whatever you can afford) and puts it into the account automatically. You will not notice it.

2. Put your coffee shop money into the account. That $6 coffee you drink every day equates to $30 a week into the account.

3. Brown bag your lunch for work and put the money into the account. If you spend just $10 a day on lunches, you’ll be able to put away at least $8 of it a day into the account, or $40 a week.

4. Collect your change each week in a jar and deposit the funds into the account. Every little bit counts.

5. If you are not paying your bills on time, it may be a good idea to fully fund your emergency account and then go back to paying your credit card companies. However, this will damage your credit and it is not advisable for those who want to maintain those accounts.

6. Create a budget that allows you to put a small amount of money each month towards your emergency account. Most people should have at least $1000 put aside for these incidents, but sometimes twice that is necessary.

7. Reduce some expense you have and then save that money. For example, cut your cable bill down and put the savings into the emergency account instead.

8. Go without something you usually enjoy and put the funds into the emergency account until it is funded. For example, if you like dinner and a movie on Saturday nights, you’ll appreciate putting that $50 to $100 into the emergency account for a few weeks until its funded.

9. Cut down on groceries and eating out for a few weeks until you fund the account. It’s hard, but worth it.

10. Work extra hours to fund the account. This is especially helpful when you can work overtime to get the funds.

To have an emergency account that is at least $1000 or up to your monthly salary is a very good thing. It keeps you above water when everything else seems to be drowning.