Read This if Your Bank Statement Makes You Cringe

Written by  //  June 18, 2013  //  Family Budgeting  //  Comments Off

emergencyfund

If you cringe every time you check your bank accounts, then you should consider budgeting to create an emergency fund. The 2012 Bankrate Financial Security Index found that 49 percent of Americans have less than three months of total expenses put away in case of emergency.1 Further, 28 percent of Americans have no emergency savings at all, according to CNN. This means nearly half of Americans are not prepared in the event of a hurricane, collapsed roof, emergency car repairs or job loss. An emergency fund is necessary to maintain some continuity while figuring out a long-term solution.2

A cash advance from CashNetUSA or other vendor is a good stop-gap solution in situations like this. These advances are meant for dire emergencies and should not be look upon as a permanent solution to a financial problem. Start accumulating an emergency fund today, and avoid facing the consequences of not having one.

What Constitutes An Emergency

Ask yourself two questions: is it a life-and-death situation or a situation that you will lose even more financially if its not taken care of? A large deductible to get a necessary medical procedure done would qualify as an emergency. If you just purchased $200 worth of groceries and all of a sudden the refrigerator stops working, that is also an emergency. A trip across the country to be with family during a crisis is also an emergency deserving of immediate attention.

Financial Inventory

Ideally an emergency fund should be enough to cover three to six months worth of regular expenses. Rent/mortgage payments, groceries, child care and transportation are just a few of the items that are factored into this total. There is an excellent tool at PracticalMoneySkills.com that allows you to enter all your daily and monthly expenses to determine how much to set aside for your emergency fund.3 Make certain to factor in any tools you anticipate needing for job searches, including wardrobe.2

Where To Save

Choosing a place to deposit your emergency fund is your next hurdle. There are some people who will do it the old-fashioned “cash in the mattress” method due to current market conditions. A savings account is probably the safest place to store your funds, but isn’t what it used to be. The average savings account yields interest of less than 1 percent in 2013, according to Money-rates.com. Though the interest rate is low, the FDIC still insures your deposits up to $250,000, so a savings account still has some advantages over your mattress.4

Another avenue would be to deposit your savings into a mutual fund. These are considered one of the safest Wall Street investments because the fund is dispersed between several different investments. There are some drawbacks to this option though. Your emergency savings will be susceptible to losses, as with any investment. Mutual funds rise and fall with stock market activity and should there be economic turmoil, your funds will drop. Finally, pulling cash from a mutual fund takes time. In most cases, the wait time can be upwards of a month, according to USNews.com.5

1http://www.bankrate.com/finance/consumer-index/financial-security-charts-0612.aspx

2http://money.cnn.com/2012/06/25/pf/emergency-savings/index.htm

3http://www.practicalmoneyskills.com/calculators/calculate/emergencyFund.php?calcCategory=budget

4http://www.money-rates.com/research-center/best-savings-accounts-2013.htm

5http://money.usnews.com/money/personal-finance/articles/2012/05/30/that-elusive-emergency-fund-why-you-need-it

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