By Hughes Federal Credit Union
Set a Savings Goal
Financial experts recommend setting aside 3 – 6 months of living expenses in an emergency fund account. But when you’re struggling to make ends meet this idea can seem impossible, so break the goal down into more manageable chunks. You can eventually build up to this amount but start small. Your first savings goal might be $500 or $1,000 added to your emergency savings account over the next 12 months.
Open a Dedicated Account
Once you have a savings goal open an account for your emergency savings. A separate account will help you see your savings progress and ensure the money is there when needed.
Pull Extra Money from Fixed Expenses
Cutting expenses should be part of your plan to stop living paycheck-to-paycheck. Eliminating unnecessary spending will free up cash each month and allow you to save. Variable expenses such as gasoline and utilities are necessary yet tough to reduce by more than a few dollars. But did you know that your current budget might hold the key to funding your account quickly? Here are a few often overlooked sources of savings:
Student Loan Payments – If you have a high-interest rate student loan, then consider refinancing to lower the payment. While this may extend the life of the loan, it could free up $100’s a month depending on your outstanding student loan balance. If you have federal student loans, you might lose certain federal protections when you refinance using a private student loan, so carefully weigh your options.
Credit Card Payments – Cards with high or variable annual percentage rates (APRs) can be transferred to a lower fixed APR card if you have good credit.
Auto Loan Payments – Refinance your automobile loan if a lower rate is available.
Mortgage Payments – If you owe less than 80% of the value of your home, then it’s time to request removal of private mortgage insurance (PMI) from your mortgage. Call your lender to determine if you have PMI and for instructions on how to cancel it.
Automate Your Savings
Apply the cost savings to your emergency account. Set your checking account to automatically transfer the money saved each month from reducing expenses and deposit it into your dedicated emergency savings account. There will come a time when you will need to withdraw funds from your emergency account. You’ll be able to do so with the confidence of knowing that the emergency is not causing you to go into further debt. Yes, you’ll need to replenish your fund but now you know how to do so quickly.
Building an emergency fund account is only the beginning. If you haven’t already done so, create a financial plan to help build a secure financial future for you and your family.
