Emergency Savings Plan – What’s your plan?
Having an emergency savings account is critical for maintaining your financial well-being.
Many of life’s surprises come with a financial cost. Whether it’s a car accident, critical home repairs, or unforeseen medical expenses, being prepared with an emergency fund will help make sure you are prepared to successfully navigate what life throws your way. Having an emergency savings plan will also help you without having to turn to high-interest credit cards, personal loans, or premature withdrawals from retirement funds. According to a recent survey, most Americans (61%) would not be able to cover $1,000 using some form of savings account.
“Three months of salary”
There isn’t an exact amount to put aside for emergency savings. Some experts recommend three months of your salary, in case you lose your job or have to stop working for a period of time.
Where should I put this money?
When starting your emergency savings, your first question might be “Where should I put this money?” While hiding cash somewhere around the house won’t necessarily fail you, you might do better to put it in a secure savings account that is separate from the main place you store cash (such as your checking account). This way, the money can earn interest, and you’ll be less tempted to use it for non-emergency expenses. A good rule of thumb is to treat your emergency savings account like a bill, contributing a realistic sum into it every month. Over time, you’ll find that your emergency savings have grown into a comfortable fund that can help you weather some serious financial storms.
What about a Traditional IRA?
A Traditional Individual Retirement Account (IRA) is a great option for emergency savings. The balance of your IRA is always available to you in case of an emergency. Also consider that if your emergency to deal with something like a loss of employment, you will probably less in taxes when withdrawing the assets. Also, the average annual growth is greater in an IRA versus the growth of money sitting in savings account. It is important to remember that an IRA has a bit more risk of loss than a regular savings account.