Your Emergency Fund

Your Emergency FundWould you be able to come up with $2500, today, if you needed to? What about $1000? Twenty-six percent of Americans – just over one in four – have no emergency savings, according to a report by Bankrate.com.  Over the past four years, there has been little to no progress when it comes to Americans’ saving.

Even those who manage to save aren’t putting away enough, say financial experts. Sixty-seven percent of people in the United States do not have the recommended six months of expenses saved, and half have saved less than three months’ expenses. The percentage of people with savings enough to cover at least three months shrank to 40 percent in 2014, compared with 45 percent a year earlier.

“Americans continue to show a stunning lack of progress in accumulating sufficient emergency savings,” said Greg McBride, CFA, Bankrate.com’s chief financial analyst. “Even among the highest-income households – those with annual income of $75,000 or above – fewer than half (46 percent) currently have a six-month savings cushion.”

Bad things can happen at any time:  your car can be totaled, you can lose your job, or you can be injured and not be able to work. Having an emergency fund is a necessity.

How much is enough? Financial experts recommend having between three to six months of living expenses in a savings account. Personal finance expert Suze Orman goes further and advises people to have at least eight months of a safety net – the averag

e number of months it takes to find a new job in case of unemployment.

Sounds easy, right? The challenge for most people is finding the money to put aside and to get into the routine of putting that money away in a savings account. One suggestion is opening up a savings account with a bank that offers the ability to easily set up an automatic transfer into or out of an account. Set up a transfer that automatically moves $10, $20 or $35 each week from your checking account into your savings account. Then, forget about the emergency fund. Let it begin to build.

Now, you may be saying you cannot afford that each week. Look at it this way: if you manage to put just $5 per day to your emergency fund (less than the cost of a lunch), you’ll have $1,825 at the end of the year – that’s $9,125 in just five years!

There are other ways you can help grow your emergency fund. Start simply, by taking the change out of your pockets at the end of the day and putting it in a jar. Cut back on eating out and put the money you would have spent on tips and the bill toward your emergency fund. If you get cash back on your credit cards, or just paid off a big debt, such as a personal loan or an automobile, put that newfound money into your fund. If you get a tax refund, deposit the check into your fund.

If you carry a lot of debt, one approach to consider is first to build up a $1,000 emergency fund and then redirect your efforts toward eliminating your debt. Then, once you are debt-free, continue to build your emergency fund further.

Financial expert Dave Ramsey offers four quick ways to build your emergency fund:

Sell something: If you take a couple of hours to look around the house, you’ll be amazed at how many items (old kids’ toys, exercise equipment, dusty power tools, etc.) you could convert to cash. That is much better than offering to pay your mechanic for a new alternator with an old treadmill that hasn’t run since Carl Lewis.

Get a second job. Six months of an extra job can make a huge difference.

Little cuts mean big results. Look at your budget and do a bunch of little cuts you will not notice, individually, but add up significantly. Turn the thermostat down a degree or two, clip some coupons and cancel unnecessary services or memberships.

Find extra income opportunities. This is a little different from getting a second job, but it can be just as effective. You can be paid to fill out surveys and watch ads online. Maybe you can cut lawns for your elderly neighbors. The good part is you do not have to go far to find these opportunities. In fact, for the surveys and ads, you can work from home. You can bump up your income a few hundred dollars a month by doing stuff like this.

As you build your emergency fund, keep in mind it is not a piggy bank to dip into for splurges or treats. If you want to buy a TV or take a trip, set up a splurge account. Bottom line: you should not be dipping into the emergency fund for any purpose other than to help with living expenses when an emergency does happen.

For more information on Summit Brokerage Services, visit www.joinsummit.com or contact us at (800) 354-5528.

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