Saving Strategies 101
An emergency fund is a savings account that you set aside to cover unexpected expenses, such as a medical emergency, job loss, or car repair. The goal of an emergency fund is to have enough money saved up to cover at least three to six months’ worth of expenses.
Building an emergency fund is important because it helps you avoid going into debt in case of an unexpected expense. Without an emergency fund, you may have to rely on credit cards or loans to cover the expense, which can lead to high-interest debt that takes years to pay off.
To build an emergency fund, you can start by setting a savings goal. Calculate your monthly expenses, and multiply that by three to six months to get your savings goal. Then, set up automatic transfers from your checking account to your savings account to make saving easier. You can also cut back on unnecessary expenses, such as dining out or buying new clothes, to increase your savings rate.
It’s important to keep your emergency fund in a separate savings account from your regular checking account. This will help you avoid the temptation to dip into your emergency fund for non-emergencies. Look for a high-yield savings account to earn the most interest on your savings.
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