We all know it’s important to have an emergency fund but living through uncertain times has made it real. A little bit of savings can go a long way toward paying your bills in case the unexpected changes the direction of your financial path.
Most experts recommend stockpiling at least three to six months’ worth of income to sustain your household in an emergency. While that may seem like a lot right now, it’s a financial goal you can chip away at a bit at a time. Even if you’re able to dedicate only a little income each month to savings, it will add up over time—and can help prevent you from going into debt if you experience sudden job loss, require medical care or need to pay for a major home or car repair.
No matter where you are on your financial journey, establishing an emergency fund is a crucial step toward building long-time financial security. Whether you’re just getting started in life or need to replenish a depleted savings account, the right tools and strategies can help accelerate your savings, so you’ll be prepared for the next curveball life sends your way.
Step 1: Open a high-yield savings account
The interest on a traditional savings account helps your emergency fund grow over time, but what if you could grow your savings faster? To help give your savings an extra boost, OCCU has created the Ignite Savings® account, which pays even more interest than a conventional account.
The Ignite Savings account is useful tool for kickstarting your savings. With no minimum deposit or balance, you can start small and build up from there.
Step 2: Set up a monthly automatic transfer
Saving is easiest when you don’t have to think about it, and consistent small deposits are more effective than larger sporadic contributions. Find a monthly amount you’re comfortable with, no matter how little, and factor it into your budget. Then schedule an automatic transfer to ensure your emergency fund grows at a steady pace. You can still make extra deposits whenever you have the funds available, but your savings will continue to grow regardless.
Step 3: Set a savings goal
There’s a trick to achieving any long-term financial goal: Break it into chunks. It’s easier to stay motivated when you pursue a series of smaller goals rather than a large one, because each goal you meet gives you a sense of accomplishment that helps propel you toward the next target.
Instead of aiming for three to six months’ worth of income right away, set a more accessible goal for your emergency fund. With an Ignite Savings account, for example, start with a goal of $500 to take full advantage of the higher interest rate. Once you achieve that, aim for $1,000. As you accomplish each goal, move the target back a little bit farther until you’ve built a solid safety net.
Step 4: Set rules for using your emergency fund
Once you’ve got some money saved up, it’s important to make smart choices about when and how you spend it. While it might be tempting to dip into your emergency fund whenever you’re a little short on cash, doing so could leave you unprotected in a true emergency.
Set up a few guidelines before you consider touching the money saved in your emergency fund. Following your guidelines can help set you on the path toward better financial security. With an emergency fund ready, you’ll be more prepared to weather whatever surprises await you around the next bend.