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Managing Emergency Savings

Page history last edited by Holly Swyers 6 years, 5 months ago

How can you decide how much money you should set aside for emergencies?

Emergencies cannot be predicted and there is not an exact amount of money for a person to set aside for emergencies. The most important thing a person can do is determine how much money they spend monthly and from there to come up with a plan on how much they can set aside for emergencies. Every person will have a different approach when it comes to saving money and that is okay. Depending on your income, you should distribute accordingly so that you have enough for rent or mortgage, food, utilities, etc. Keeping separate accounts is beneficial as you determine one to be just for emergencies and the other as your monthly expenses. If you take money out of your saving you can always return it and add more, but you still remain stable and that is key to getting through bad situations that are beyond your control.

 

Checking account

Your checking account is usually where your paychecks are sent to through direct deposit. It is different from a savings account and it should hold at least three months of rent. This is the money that you use to pay bills and for entertainment purposes. If you do not have a checking account, there are some banks that offer free checking. It is beneficial to have a separate checking and saving account because you do not want to take money out of your savings, you want to continue to add to it because emergencies are unpredictable. Having both gives you more options on how to manage your money and if an emergency arises you know that you are stable and can make payments when they are due.  Some people say that putting aside 20% of your salary each month is enough for emergencies, but you should know your monthly budget. If you are comfortable putting away more than 20% you should do so, because the more you have set aside the better acquainted you will be. This applies not just in emergency cases, but also with entertainment and other events that are not needed but you can go to because you have enough to participate and still manage your bills.

 

 Savings account

 A savings account is beneficial whether there is an emergency or if you just want to have a good time, it is a go-to stash when an emergency arises but it is also a go-to stash when you want to have fun. It should hold 6 months of rent as well as money that is left over from your budget. The more that is added to the savings, the more comfortable you will be if an emergency takes place. It should hold 6 months’ worth of rent because you do not know what can happen with work, you can be laid off or fired and having enough in your saving to cover your living expense will keep you afloat until you get things back on track. Some would say that having $1000 in your savings account is enough for emergencies as well as having enough money to live off if you are 6 months to a year without income. Others say that having a year’s worth of salary is more than enough for emergencies because it will allow you to pay all your bills and still have extra if needed, depending on the person and how much they make a year this could be a lot, but to others it may not be enough. Deciding on your monthly budget and managing your money accordingly will help to decide how much you should set aside for emergencies.  A business owner must put aside money for taxes and having a separate account helps to keep a flow of money going into the account to pay for the taxes at the end of the year. If you do not have a separate account all the money that is available to you and that you see, you will spend. But if you make separate accounts it will benefit you in the long run as you will not have to worry about borrowing money from family/friends or from the bank who will charge you interest on the amount you borrow. It is easier to keep adding to a savings account than to take from it.

 

Credit Card

A credit card comes in handy when there are emergencies beyond your control. For example, if you own a car and it needs to be repaired, the cost to repair a car can be expensive ranging anywhere from $500-$1000 and in more extreme cases more than $1000. Having a credit card allows you to borrow money from your bank and pay it back on a month-to-month bases. That way you can repair your car without having to pull from your savings. Plane tickets at the last minute are also very expensive ranging anywhere from $800-$1200, but if you have a credit card you can purchase your ticket with it and pay it back. Also, having a credit card build your credit history, and if you make payments on time you maintain a good credit history which will be beneficial in the long-run when you would like to buy a car or home.

 

Insurance

Insurance is important to have because it is a safety net if anything is to go wrong. Depending on your personal decisions, having insurance on items that you cannot afford is important because emergencies that are beyond our control (fire, storms, etc.) will be covered by insurance. You would not have to worry about purchasing the same item again because insurance would cover it. This goes for auto insurance, home insurance renters insurance, life insurance, any type of insurance that will benefit you in the long run. In some cases, insurance does not fully cover but it is better to have to pay a percentage versus the full amount, in the end you are only saving yourself money, and that is the goal. Medical expenses are expensive, and if you have insurance it lowers the cost you have to pay. Having enough money saved in case of a medical emergency is very important, just as having insurance. You do not want to rack up medical bills and not be able to afford your other bills, so with the insurance and depending on your income you pay a portion of the medical bill which is better than having to pay the full price.

 

Keep money in different places

When you have only one account (checking and savings), you are setting yourself up to struggle because your spending money and saving money are combined so you will not look to stop spending you will continue to spend until there is no more spend. When you decide on a monthly budget you set aside an amount that is doable for you. If one month you can put more in your savings, do so because there might be a month where you cannot put any, so that will cover the missed month. This is often called a rainy-day fund. You can occasionally raid your rainy-day fund for non-urgent projects or travel, but make sure you replenish it as quickly as possible.

 

This page was developed from interviews with:

Tony Golding, Chris Cain, Florence ClancyMelissa LewisIssac Davies, Odette James, Barry O’BrienPaula Hershall, Bret Mailer, Odette James 

 

 

 

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