April is Financial Literacy Month, a time dedicated to teaching Americans how to build and maintain good financial habits. The month provides a superb opportunity to assess whether you have a solid plan to support your financial goals – and that means planning emergency expenses as well.
The best time to plan for unforeseen expenses is long before they occur. One strategy to consider is opening an emergency savings account where you can save cash particularly for incidentals or short-term savings goals. That way, you can avoid having to pay these fees by credit card and be charged interest.
Regardless of your financial circumstances, a rainy day fund offers peace of mind and, if you plan well, it will not derail your other long-term savings goals. To get started, consider these tips from Ally Financial Inc., which offers personal finance tips, tools, and education through its Wallet Wise financial literacy program:
Create a special account for emergencies:
Many make the error of assuming that a standard savings account can even function as a rainy day fund. However, saving money when your roof leaks may not be the best solution.
Start an account meant for emergencies only. Some banks, such as Ally Bank, will let you create a “nickname” for your account to serve your purpose.
Determine the amount to allocate:
Set goals for your funds that can cover most emergencies with a small amount of reserves. (Some plumbing repairs can easily be closer to $1,000.) Determine how much you’ll realistically need if an emergency should arise.
Set up recurring transfers or direct deposit to automate savings. If money is tight, decide where you’ll cut corners to make your plan work. For example, directing $30 of salary into a rainy day fund in lieu of going out to dinner one night will help plan for the future.
Free of charge is the way to be:
Maximize your savings potential by finding a bank that will not charge you a monthly maintenance fee, or penalize you for using up your emergency fund. Even better, an account that earns a competitive interest rate or that advances daily will allow your emergency fund to grow faster on its own.
Make sure you can access funds:
Many Money Market Accounts come with a check or debit card to make sure quick access to funds, as emergencies do not generally occur in a timely manner.
The advantage of such an account lets you pay your locksmith, plumber or roofer directly without having to go to the bank. Why add an additional step to a stressful situation?
For additional tips on what you need to know to be smart with your money, visit allywalletwise.com.
Everyone will face a situation where an emergency is weighing on their budget. You do not leave your house in the rain without an umbrella, so do not undergo life without that same safety net. A rainy day fund is a smart way to protect against financial stress.
Article Sourced by: StatePoint, Image Source by: (c) Jakub Krechowicz – Fotolia.com
