If you’re like many young Americans, a large chunk of your income goes toward paying down debt. Paying off student loans and credit cards as soon as possible is a smart move – you can save on interest payments and improve your credit score.
However, neglecting to build an emergency savings fund can be a dangerous oversight. A financial cushion can see you through rough patches like a job loss, medical emergency, or car repairs.
What if a couple of crises happen all at once and you don’t have enough cash to float you through? You might be forced to take out a loan, increase your credit card debt or dip into your retirement fund. Any of these options could cost you more than if you had diverted some debt payment to emergency savings over time.
How to build your rainy day fund
Financial experts suggest having three to six months of living expenses in emergency savings. This includes food, rent, insurance and other necessities. If you’re single and don’t have kids, a few thousand dollars will probably do. If you’re a married homeowner with children, you’ll need much more.
Try these tips to boost your savings over time:
- Keep a record of your spending. Set aside money from your paycheck for your essentials, and then eliminate things you don’t need, such as premium grade gas and a deluxe car wash. Put that extra money into your savings!
- Set up an automatic deposit to your savings. If you wait until the end of the month to scrape up a deposit, you may not find anything left to save.
- Find a way to make money on the side, such as taking on a part-time job, a couple of shifts at a restaurant or freelance gigs.
Building up your emergency savings is well worth it for the peace of mind it brings.
Get in the Habit
A penny saved is a penny earned. Who hasn’t heard that saying? A savings account provides peace of mind and can help you enjoy life. But how will you get there? Make savings a habit and try these tips:
- Put aside a specific portion of your income each month.
- Round up each purchase and deposit the difference into savings.
- Save every $5 or $1 bill when you get change.
The way you do it matters little. Just get started. You can also open a Hanscom FCU CU Thrive account to stash your cash.
You’ll earn a superior rate, and after a year, your balance will be transferred to savings. You can renew your CU Thrive account and build on your new nest egg.
Visit www.hfcu.org/thrive for current rates and details.
Source: May 2015, Journal of Family and Economic Issues.