NASHVILLE, Tenn. (WTVF) — Do you know how you'd pay your bills if you suddenly lost your job or had to take extended time off from work if you got sick? You may not know when that might happen, but you can at least prepare for it.
If you’re lucky, things are going well right now- you have a steady paycheck, you pay your bills on time and you might even have a little extra money left over. But what if something unexpected happens?
“We’ve all experienced unexpected financial emergencies, a major home repair, medical bills or even loss of income,” said Lisa Gill.
Lisa Gill writes about personal finance for Consumer Reports.
“Having a rainy-day fund to cover these types of unplanned expenses can protect you from major debt which can easily turn into a financial crisis,” Gill said.
Financial Planner, Nestor Vargas, says that putting aside enough to cover three to six months of essential expenses is a good rule of thumb.
“Essential expenses are housing, food, transportation, debt repayments and what you want to do is you want to sit down and figure out how much that is on a monthly basis, multiply that times 3 or 6 to come up with the actual number you need to save for your emergency fund,” Vargas said.
Once you determine your savings target – don't let that number daunt you!
“It is definitely important to start saving as much as you can or as little as you can, if it's 5 dollars, 10 dollars a month, you will be surprised how quickly that adds
up,” he said.
An online savings calculator can show how much you'll need to set aside each month to reach your goal and how quickly that money will grow.
“Consumer Reports suggests putting money into a high-yield savings bank or no-penalty certificate of deposit. Many of those accounts now have interest rates over
4-percent,” Gill said.
And make saving even easier by setting automatic deposits or transfers from your checking account to your emergency fund! It will keep your contributions on track
and secure until you need them!
Now while having and building an emergency fund should be a priority, before you focus on that, you'll want to first tackle any other urgent financial obligations, like high-interest credit card debt.
If you owe a lot on your credit card, especially with interest rates as high as they are, you'll want to pay down that debt first. If you have low-interest debt, you still want to work on paying it down, but maybe put some towards the debt and the rest towards your emergency fund.
