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Emergencies suck! Replacing your tires in the dead of winter is inconvenient. Taking time off work to care for a loved-one is stressful. Not having the money to do so makes them worse. We don’t like to focus on negatives. But, let’s face it, they suck even more when we’re not prepared. That’s why an emergency savings account is important.
Three fast steps to build your emergency savings account:
1. Open a basic, no-frills savings account
Open a savings account at a bank where you don’t currently have an account. Add no features, such as check writing or debit cards, to this account. Because this is for true emergencies, it shouldn’t be easily accessible. The harder it is to access, the less likely you are to withdraw money unless you have a true emergency.
2. Set up direct deposit into your new account
Ideally, set up a recurring direct deposit into your new account. This means a portion of every paycheck will be automatically deposited into your new account. Your employer can provide the necessary form or download ours here.
If you can’t do a direct deposit from your employer, set up a recurring electronic funds transfer (EFT) to transfer money from an existing account to your new account. This transfer can be done monthly or bimonthly. Be sure you have the money in your existing account in advance of your scheduled transfers.
3. Pick a dollar amount
Knowing that a specific dollar amount will regularly go into your new account, choose a dollar amount you’re comfortable putting into your new account at this frequency. For some, it could be $10. For others, it might be $100. Whatever works for you is fine. Just set it and forget it. You’ll be surprised how fast is accumulates.
Finally, increase your deposits or transfer amounts into this account in proportion to any pay increases. That way your financial security increases with your success.
Continue this practice until you have enough cash to cover three to six months’ worth of your living expenses. Then, you’ll be able to survive almost any emergency. And if you need any help, just download this checklist for help with each of these steps.