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How to Create a Cash
Stash for Unexpected Expenses
Special to The
Truth
April is Financial Literacy
Month, a time dedicated to teaching Americans how to
establish and maintain good financial habits. The month
provides a good opportunity to assess whether you have a
solid plan in place to support your financial goals -- and
that means planning for emergency expenses, too.
The best time to plan for
unexpected expenses is well before they happen. One strategy
to consider is to open an emergency savings account where
you can stash cash specifically for unexpected expenses or
short-term savings goals. That way, you can avoid having to
pay for these expenses with a credit card and incur
interest.
Regardless of your financial
circumstances, a rainy day fund offers peace of mind and, if
you plan well, it won’t derail your other long-term savings
goals. To get one started, consider the following tips from
Ally Financial Inc., which offers personal finance tips,
tools and education through its Wallet Wise financial
literacy program:
• Create an account specifically
for emergencies:
Many make the mistake of
assuming that a standard savings account can also serve as a
rainy day fund. However, dipping into savings when your roof
leaks, may not be the best solution.
Start an account that’s only
purpose is for emergencies. Some banks, such as Ally Bank,
will allow you to create “nicknames” for the accounts to
reinforce their purpose.
• Specify amount to be
allocated:
Set a goal for your fund that
could cover most emergencies with a little extra to spare.
(Some plumbing repairs can easily run close to $1,000.)
Determine how much you would realistically need if an
emergency were to arise.
Set up a recurring transfer or
direct deposit to automate savings. If money is tight,
decide where you’ll cut corners to make your plan work. For
example, directing $30 a paycheck to a rainy day fund in
lieu of going out for dinner one night will help plan for
the future.
• Fee free is the way to be:
Maximize your savings potential
by finding a bank that won’t charge you a monthly
maintenance fee, or penalize you for dipping into your
emergency fund. Better yet, an account that earns a
competitive interest rate or one that is compounded daily
will allow your emergency fund to grow faster on its own.
• Ensure you can access funds:
Many Money Market Accounts come
with checks or a debit card to ensure quick access to funds,
because emergencies usually don’t happen at convenient
times.
The benefits of such accounts
allow you to pay a locksmith, plumber or roofer directly
without needing to run to the bank. Why add an additional
step to a stressful situation?
For additional tips on what you
need to know to be smart with your money, visit
allywalletwise.com.
Everyone is going to face a
situation where an emergency strains their budget. You don’t
leave home in the rain without an umbrella, so don’t take on
life without the same safety net. A rainy day fund is a
smart way to guard against financial stress.
Courtesy StatePoint
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