How to establish an emergency fund for your family
Families and individuals need to have an “emergency fund” established for times when an unexpected need for emergency money occurs such as an auto or home repair or a medical emergency or deductible.
When a family is not in a position to come up with readily available extra funds, here are some tips on what to do and how to best prepare for these times.
Q: How much money should you have in an emergency fund?
A: Financial planning experts recommend having 6-12 months of take home pay however, building this fund for most people is very difficult. To start, everyone should have at least ad extra $500.00 available for an unexpected emergency. The fact is many unfortunately do not have even this minimal amount. Statistics say many families do not have even $400.00 in reserve for these type of situations. We recommend direct deposit of your paycheck into you account, with a designated sub-account, such as an additional Savings or Holiday Club Account for example, earmarked for a specified amount to be deposited as an additional savings account. The Holiday account, while originally created as savings for the Holidays, provides as well for the unexpected situation causing the family to get their hands on some money quickly and without worry or penalty.
Q: How does setting up an extra account help build an emergency fund?
A: First, off everyone should have direct deposit for their paycheck if available. Most online or mobile banking systems allow the account holder to make automatic transfers from one account to another. Putting your savings on “automatic” or “set it and forget” mode eliminates the decision to put money aside each time the paycheck hit a person’s account.
Q: What about establishing “credit” and qualifying for a credit card. Would that help provide for fast cash in an emergency?
A: Absolutely. The establishment of a credit card for an emergency is not a bad idea. However, establishing or reestablishing good credit can be a challenge. In either situation, building an emergency fund can help tremendously. This fund can be used to secure a credit card and over time if used correctly, it can build a person’s credit to the point where an unsecured card is eventually offered.
Q: What about younger people including students who want to establish credit?
A: Starting with an emergency fund is a great first step. The establishment of credit for a student is essential as they grow. Once a student can build an emergency fund, they can use it to secure a credit card without having established credit.