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Having an emergency fund should be a top priority for Americans to cover unexpected and emergency expenses. Experts recommend that you should save up several months’ worth of living expenses in case of an emergency.
Megan Dow, senior strategist at Edward Jones, told FOX Business: “I recommend having three to six months’ worth of expenses in an emergency savings fund, but even a few hundred dollars can make a huge difference to your financial stability. “We know it’s going to increase,” he said. “For example, if you can put away $50 a month, within a year you will have more than $600, including interest, for emergencies. You may not feel the difference right now, but if you put that money aside, If you save for more than a month, each month will have an impact in the long run.”
Dow said life is unpredictable and unexpected expenses can occur, such as needing repairs to your home or car.
“Alternatively, you may experience a reduction in your income, such as having your hours reduced or losing your job,” she says.
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Life is unpredictable and unexpected expenses can arise, such as needing repairs to your home or car. (license/image)
Additionally, other emergencies may arise, such as medical emergencies or expenses.
“This can result in unexpected increases in expenses and decreases in income at the same time,” Dow said.
Why is an emergency fund so important?
Dow explained that having a “rainy day” fund can help you avoid going into debt or dipping into your retirement savings when things don’t go as planned.
“It also gives you more of the ability to live your life on your own terms,” she added. “You have the flexibility to make changes that you might not have been able to make if you didn’t have the financial means, such as leaving a bad job or relationship. Having money gives you more freedom to make changes. ”
Why is it so important at the beginning of the new year?
Dow said the best time to start an emergency fund is at the beginning of the new year.
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“Now is a good time to develop better financial habits,” Dow explained.
Having a “rainy day” fund can help you avoid going into debt or depleting your retirement savings when things don’t go as planned. (license/image)
In fact, a recent study from Edward Jones found that for those who failed to maintain their financial resolutions in 2023, one of the biggest factors that undermined their efforts was unexpected life events (51%).
“Building financial reserves now will avoid being caught off guard in 2024,” Dow said.
Use these expert strategies as you begin your plan to build your emergency fund.
split the salary
Most employers allow employees to have their paychecks deposited in multiple locations, Dow said.
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“If this is an option for you, put a portion of your paycheck directly into a separate account that will serve as your emergency fund,” Dow told FOX Business. “Creating an easy, smooth, and automated option for building an emergency savings fund will help you stay on track without “missing out” on funds. ”
“Found” save money
Mr. Dow said he would commit to pre-utilizing a portion of the financial windfall, such as a third or a half, in the form of tax refunds, employment bonuses or gifts to emergency savings funds.
“It doesn’t feel as painful as allocating your day-to-day income because there probably isn’t a budget for additional funds,” she said. “Plus, since we’re only using a portion of it, we’ll use the rest for things we can enjoy right away.
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choose a side gig
If you don’t have room in your budget to save and your schedule allows, consider part-time work to build your emergency savings. You don’t have to do it forever, but you can use the earnings from your side hustle to fund your emergency savings without affecting your main income for day-to-day expenses.
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“For example, if all of your money is in low-interest savings accounts, you can help your money grow at a faster rate by putting it in a high-yield money market account or CD,” Sandra McPeek suggests Did. , Managing Director of Wells Fargo Advisors. “This can easily be done online or through your brokerage, and with automatic transfers, there is no monthly hassle.”
tidy up the house
Adopt a trash-to-treasure mindset, says McPeak. Donating clothes, furniture, toys, and even old cars to nonprofit organizations can earn him a tax deduction, he said. You can also sell unwanted items that are in good condition and put the proceeds into your emergency fund.
