The L.A. Times recently ran an excellent story about how millennials feel stressed about money. Establishing an emergency fund is a great way to reduce anxiety about your finances. Here are some important facts about emergency funds.
- 26% of Americans don’t have an emergency fund
- Approximately 66% of Americans do not have 6 months of savings
- 63% of surveyed millennials want to have an emergency fund
5 Tips That Can Help You Feel Less Stressed About Your Emergency Fund
We all need a little cushion in our finances to help us with sudden expenses such as a car repair or a big out-of-pocket medical expense. More immediate financial concerns such as paying rent and student loans often leave you feeling like you have no extra money to set aside. However, people with modest incomes can build up savings. Achieve your goal of an emergency fund by:
- Starting with a Reasonable Goal – The thought of saving 6 or even 3 months of expenses seems overwhelming to a lot of people. Break this number into smaller pieces. Many people often find they can save an amount such as $25 per paycheck.
- Setting up a Separate Bank Account – Once you determine a small amount to set aside, start a separate account. Ask your bank about programs that allocate money from your paycheck right into your new emergency fund.
- Saving Your Tax Refund – Instead of splurging on a luxury item, make a point of actually saving your refund in an account designated for emergencies.
- Getting a Second Job / Side Business – Despite the stereotype, you probably do not have a closet full of high-end clothes, drink expensive coffee every day, and / or vacation in exotic destinations. Your problem might simply be you live in a high cost area and need to generate more income to cover expenses. Companies like Uber and Lyft recruit drivers who need extra cash. There are other options to consider. Many states and localities reduced regulations on home-based businesses during the recession in an effort to increase employment and improve the tax base. If you are a great baker or a fantastic tutor, you have fun and earn money to cover emergencies.
- Sell Unnecessary Items- Companies such as eBay exist because of the cliché that one person’s trash is another person’s treasure. Consider selling off items such as old jewelry or video games for extra cash. Deposit that money in your new emergency fund.
Give Yourself Peace of Mind
Establish clear ground rules for yourself so you only tap into your fund for a true emergency such as a job loss or health crisis. If you need to draw down your emergency fund, make it a priority to build it back up once you recovered from your crisis. You never know if the next unexpected expense occurs in a few months or a few years.
The L.A. Times reported that money causes millennials a great deal of stress. When you create an emergency fund, you exert control over your finances. Savings earmarked for emergencies lowers the stress that results from unexpected surprises.