Life happens. And when it happens, it will often come with an unexpected price tag. Is that extra bill something you can afford to pay? Even on top of all your other bills?
Wouldn't it be nice if you already had the cash to pay that unexpected bill? Without having to borrow any money from family, friends, professional lenders, or your neighborhood loan shark? Or set up a GoFundMe fundraiser? Or count on winning the next lottery drawing?
If it's not obvious already, having cash saved and ready to use in case of emergency is a real solution to the money problems posed by potentially unexpected life events.
But there's a catch. In order to have a supply of cash available when an unexpected event happens, you have to have saved it first. According to Bankrate, just 44% of Americans have the savings to pay an unexpected bill of $1,000. If saving was as easy as banks make it sound, wouldn't that percentage be much higher? Right off the bat, 56% of Americans would seem to agree that saving is harder than it sounds.
To Bankrate's credit, they do suggest two basic steps for establishing up an emergency savings fund, including:
- Setting up an account for your emergency savings in a savings account at a bank that earns a high rate of interest. They also say if you can get a cash incentive from the bank to set up a new account, more power to you.
- Regularly funding the account a little at a time using direct deposit from your paycheck.
If you don't like banks and are willing to give up earning interest on your savings, you could cut the bank out of the picture and save cash in a piggy bank or in a safe at home. Both of which have their own risks, such as your kids helping themselves to what's in your piggy bank or you forgetting the combination to the safe! But there are some new options for setting up an emergency savings fund you might want to consider that may be available to you through your job.
If your employer offers a 401(k) program that is managed by Fidelity, you may have access to Fidelity's new Goal Booster program. This is a new program that automatically combines payroll deduction with savings accounts that are directly linked to your specific savings goals but are separate from your retirement savings. That means you can take out money from them when you need to without paying any early withdrawal hardship penalties. Other employers are starting to provide access to similar programs managed by firms like SecureSave and Sunny Day Fund.
What we haven't yet discussed is how much to save for an emergency. That's a different topic for a different day, which we'll get around to covering in Part 2!
Image credit: Piggy bank on a pink background image by Quince Media on Pixabay. Creative Commons CCO 1.0 Universal Public Domain Dedication.