Business_news 3 guaranteed ways to reach your emergency savings fund goal

Business_news

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  • An emergency fund is a vital savings account that can cover unexpected expenses, like a car repair or medical bill.
  • Emergency funds are also essential in the event of an unexpected job loss, as more than 40 million Americans have so far experienced during the COVID-19 pandemic.
  • Most people should save at least three months of expenses in emergency savings, if not more.
  • See business Insider’s picks for the best high-yield savings account »

What would you do if you had to come up with $1,000 tomorrow? Could you afford to pay for that emergency expense from your checking or savings account? If you would put it on a credit card, could you pay it in full before interest is due on the card?

According to a December 2019 survey byGOBankingRates, 69% of Americans have less than $1,000 in savings. That’s likely not enough to last in the event of a layoff or other unexpected job loss.

To put yourself in the (hopefully growing) portion of Americans who do have at least $1,000 in the bank, follow these steps to pick the right savings target and reach your emergency savings goal.

Business_news What is an emergency fund?

An emergency fund is a key savings account that can protect you from a financial emergency. Whether it’s a job loss, reduction in hours, or big expense, financial emergencies happen regularly.

Most of us have had to pay for an unexpected car repair or home repair. Or perhaps you or a family member was injured or sick and you ended up with big medical bills. Either way, it’s important to have savings to cover these types of costs.

For most people, the best way to save for emergencies is a dedicated high-yield savings account. Even in alow-interest rate environment, high-yield savings accounts tend to offer the best savings account rates around with the ability to move your cash to your checking account with just a few taps on your phone or clicks of the mouse.

Business_news Choosing an emergency fund savings goal

While there are many opinions onhow much people should save in an emergency fund, many money experts commonly suggest saving a minimum of three months of expenses in emergency savings.

This figure didn’t come out of thin air. Most people could cover most common emergency expenses if they have at least three months of savings on hand. Further, if you were to lose your job, a three-month savings cushion should hopefully last while you get back on your feet with a new job.

If you are more conservative with your finances, you could want to save as much as six months of expenses in cash. If you are a freelancer, self-employed, or don’t have a steady job, it could be agood idea to save at least six months of expensesin an emergency savings account.

Business_news Three methods to save in an emergency fund

As a freelancer myself, I set a goal of 12 months of emergency savings, which I have spread over a few different high-yield savings accounts. While some people would argue that a good chunk of that belongs in investments, I sleep much better knowing my family is financially secure even if something goes wrong with my income.

I didn’t save that much money overnight. Here are three strategies I used myself to reach my emergency fund savings goal:

Split your direct deposit

If you work for a company that offers direct deposit for payroll, as most people do, you probably picked the most common option of depositing your full paycheck into your checking account every payday. But that isn’t your only option.

When I worked at large companies, I could log into the payroll system and split my direct deposit up into more than one account. Options generally included the ability to set a specific dollar amount or percentage to a second or even third account.

You can choose to save 1%, 2%, or more of your paycheck, or a fixed dollar amount, automatically on payday. Because the money doesn’t even touch your checking account, you won’t be tempted to spend it.

Automatic bank transfers

If you can’t automatically split up your paycheck, you can split up your cash when it reaches your checking account. Most banks feature the ability toset up a recurring transferon a specific schedule that could match your paydays.

If you are paid every other week on Friday, for example, you could set up an automatic withdrawal of $20 per paycheck on payday. For those paid on specific days every month, you can set up two monthly automatic withdrawals on those dates to match your pay schedule.

By saving a little bit every payday, you’re making progress toward that savings goal. Even if you can only afford to save $1 per day, or $5 every week, it’s better than not saving anything at all.

Always save lump income

Living on a budget is a good idea for people of all income levels. Budgets help you predict your expenses and find the money for additional savings and investments. As an added benefit, living on a budget gives you the option to save any lump income that comes your way.

Most people see a lump income every year after filing their tax returns. You could also get a lump income through a bonus or big commission at work or through gifts or inheritances.

If you get a big chunk of cash all at once and live on a budget, it’s easy to funnel that entire amount into your emergency fund. That helps you reach your goal even faster.

Business_news It’s OK to start small with emergency savings

If you are one of the majority of Americans who live paycheck to paycheck, coming up with extra cash to save isn’t always easy. If you struggle with money, even saving a small amount is worth the effort.

As you improve your financial habits, you might find it easier to save. It’s always OK to transfer extra cash at the end of the month to your emergency savings. You can also log into your accounts at any time to increase your recurring savings rate when you’re ready.

With a goal in mind and a strategy mapped out, it’s your turn toput it into action. It’s never the wrong time to start an emergency fund or update your savings strategy.

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