Preparing Your Finances for Life's Events
Having an emergency fund can reduce financial stress, reduce the chances of using credit cards, and reduce the need for borrowing to cover these expenses. An emergency fund should cover at least three to nine months of expenses. Those expenses include housing, transportation, food, and insurance, among other essentials. If you are unsure of where to start, here are a few tips for establishing an emergency fund:
Create a budget.
The first step to establishing an emergency fund is to create a budget. A budget is a spending plan for your money; it details your income and expenses. It'll be helpful to track your expenses for 15-30 days to identify your expenses. Tracking this information will allow you to see how you are spending your money, where you can reduce your expenses, and ensure that you are living within your means. You can also identify areas where you can save money, and put that money towards your financial goals.
Set financial goals.
Once you establish your budget, you will have a realistic picture of your finances so you can start setting some goals. A great goal to start with is saving $500-1,000 over the next 12 months for your emergency fund. Then you can move on to other goals, like paying down debt, while simultaneously padding your emergency fund as needed until you are fully financially prepared for the unexpected. The keys to reaching your goals are planning, discipline, and consistency. Make sure your goals are specific, measurable, achievable, relevant, and time-bound.
Have a designated emergency fund account.
Open a checking, savings or money market account specifically designated for emergency funds. By establishing a deposit account, your funds will be easily accessible when an emergency happens. AllSouth offers a variety of Savings and Checking account options that can help you save for your emergency fund.
Set up automatic savings.
The easiest and quickest way to save is to set up an automatic deposit. With this "out of sight, out of mind" method of managing your finances, you'll be able to consistently save money to reach your financial goals, including your emergency fund. Through your employer, you can deduct the amount you want to save from each paycheck into your designated account. If this option is unavailable, you can arrange with your financial institution to set up an automatic transfer from your account.
Stick with your plan.
To save for your emergency fund successfully, you must be willing to take action and stick to your plan and check your progress until you reach your goal. It can be challenging at times, as unexpected events can be stressful but once you have a plan and start saving, you will be more likely to stay calm and focused when an emergency happens.
Preparing your finances for unexpected life events is an important part of financial planning. By creating a budget, setting financial goals, having a designated emergency fund account, setting up automatic savings, and sticking with your plan, you can help ensure that you are financially prepared for whatever life throws your way. Here at AllSouth, we are here to help you achieve your financial goals and prepare for unexpected events.