SmartBanking Blog

National Preparedness Month

               National Preparedness Month is observed every September to encourage Americans to plan and prepare for emergencies and disasters. Many emergencies and disasters require individuals to have emergency funds or savings. How can you make sure your finances are prepared in the event of a tragedy?

               Emergency funds are for unplanned expenses. These are often medical or personal emergencies like medical bills, home repairs, or loss of income, but can also include natural disasters. People may choose to keep these funds in a traditional bank account, on a prepaid card, or in cash. The amount will vary depending on each person’s potential loss amount. Keep in mind that emergency funds are different from your regular savings account which should be reserved for achieving financial goals.

               Here are the steps for successfully setting up an emergency fund from scratch.

Step 1

               Calculate a reasonable goal amount based off any insurance deductibles or a couple of months pay. Then create a plan for how much you need to put aside each day, week, or month to help you get to your goal emergency fund amount. Decide whether this amount will come out of your account automatically or if you will manually put the money into your fund.

Step 2

               Maximize your emergency fund by taking advantage of one-time windfalls. These windfalls include tax return money, birthday gifts, or work bonuses. Setting this money aside for your emergency fund can help you get to your goal much faster and may free up other funds for allocation into your daily expenses or savings.

Step 3

               Do periodic check-ins to your emergency fund. This will help you make sure things are progressing as needed, as well as allow you to reevaluate your emergency fund as things change in your life. If you need to increase or decrease the amount you put in your emergency fund, this is best done quarterly or semi-annually.

Step 4

               Have peace of mind knowing that you are ready to bear the financial weight of an emergency if it does happen.

               Emergency funds are essential to getting back on your feet after an unplanned or emergency financial situation. Not only do they provide you with a sense of security and safety, but they can also help you avoid taking on debts that may be even more difficult to pay off. If you do end up having to spend your emergency fund, it is important that you build it back up again each time.

               Experiencing an emergency or disaster is stressful enough. Avoid adding financial stress to the mix by preparing an emergency fund in advance.

Sources:

https://www.consumerfinance.gov/an-essential-guide-to-building-an-emergency-fund/