Life is full of surprises, but that doesn’t mean that you have to be unprepared. Establishing an emergency fund can help you quickly recover from unexpected expenses. Here are a few tips for creating and growing a healthy emergency fund:
- Track your monthly income and expenses
Before creating an emergency fund, get familiar with how much money is coming in and out of your household. Start with whatever amount you can save until you have accumulated at least one month of take-home pay. Build on this to eventually cover three to six months of living expenses. See if you can limit miscellaneous expenses to put towards your emergency fund.
- Define what qualifies as an emergency
It’s important to define an emergency so that you don’t dip into your emergency fund unnecessarily. For example, a higher-than-usual utility bill would not qualify as an emergency, but a sudden gas leak that requires immediate repair might. Once you’ve built up your basic emergency fund, you might consider opening a separate savings account that is for expenses like car maintenance, vacations, and clothing.
- Store your emergency fund somewhere accessible
You want your emergency fund to be stored somewhere that allows it to be withdrawn quickly without penalty. At the same time, if your emergency fund is too accessible, you might be tempted to dip into it. The best option is to create a liquid account that is separate from your primary checking account. The Meed Package’s secured line of credit that Meedrs will be able to open at Meed Member Banks allows Meedrs to borrow up to 75% of their savings balance. This will help you keep your savings intact, accumulating interest to save for major goals, for example a down payment on a house.
- Keep the change
Don’t underestimate your pennies, they add up! Consider doing a periodic sweep of your house and empty your purse or wallet to collect spare change. Put it in a jar to cash out and be transferred to your emergency savings once it’s filled. You can also save $1 and $5 bills when you break big bills.
- Beef up your earnings with passive income
Passive income is income that comes from an enterprise you’re not actively involved in, like a rental property or cash back rewards on credit cards. Meed makes passive income easy with our SocialBoost program, which provides Meedrs the opportunity to earn funds by referring friends and family who sign up with one of our Member Banks. Once you’ve established some passive income, some of it will be directly deposited into your savings account, formally called the Security Savings Account, to help your emergency savings grow more quickly.
- Save your tax refund
A tax return can be a great way to establish an instant emergency fund. When filing taxes, have your return deposited directly into your emergency fund so you’re not tempted to spend it.
The most important thing to remember when establishing an emergency fund is to stick to the plan! Be consistent in how much you save and make reasonable goals that are easy to meet. Before you know it, you’ll be better prepared for any financial emergency life throws your way.