An emergency fund is just what you probably imagine: a reserve of savings to help get you and your family through tough times or cover unexpected bills. Many of us tend to use credit cards for emergencies, and while that’s a common practice, it’s not necessarily the best way to handle things. Renown financial guru, author, and radio host Dave Ramsey recommends that everyone begin with a $1,000 emergency fund, then slowly build several months of savings after paying off debt. But no matter how much of an emergency fund you think you need, here are some tips for creating yours.
1. Set Up Another Account
You might like how your bank accounts are set up already. But even if you do, it’s a great idea to set up a second account just for your emergency fund — one that isn’t tied to your regular accounts like checking. This will help you stay out of that money unless you really need it.
Depending on what accounts you have set up already, you may choose to establish two different savings accounts and transfer a specified amount of money in each account every time you get paid. Or maybe you drop some money into one account in your mid-month paycheck, moving money into the other account on your 1st-of-month check. One of these savings accounts is for regular savings, the other is only for emergencies. If you’re saving for a purchase, feel free to use your regular savings to cover that when you have enough, but leave the emergency fund alone until an emergency arises.
2. Don’t Get a Debit Card
Keep it as a savings account only — don’t get a debit card attached to it. It’s just too easy to accidentally use the wrong card or give into temptation to buy those shoes or irresistible lamp. It’s for real emergencies…not fashion emergencies, remember?
3. Teach Your Kids
It’s important for kids to learn savings at an early age, and learn the value of an emergency fund. Let your kids save both for fun things and for a rainy day, but show them by example the value of saving money that’s just for an emergency. Don’t let them spend it on a new iPod or nickel-and-dime it away on candy.