If you qualified for a stimulus check as an American, then you may have received enough money to start a $1,000 emergency fund. A qualifying family with four children could receive up to $4,400 in funds to use, which is enough to establish savings of 3-6 months for most households to cover necessary expenses.
Your emergency fund needs to cover unexpected problems that arise outside of your regular income or handle your monthly bills if you lose your job.
It should be enough to manage a home repair, appliance replacement, or a significant automotive issue. If you can get $1,000 into this fund so that it can start growing, then you have will have some financial flexibility.
How to Start a Financial Buffer
You should keep about six months of expenses in your emergency fund. Since most families don’t have this financial buffer, the first $1,000 of savings becomes a critical amount to have ready.
Keep your emergency fund in a savings account you can access easily. Look for the highest interest rate possible. Then follow these steps to start getting enough money put away.
1. Calculate the total amount you want to save. Then split that figure into payments you put into savings from your monthly income. Take this money out first before paying any bills so that you stay committed to the process.
2. Keep the change whenever you have a cash-based transaction. When your jar fills up, then move all of those funds into your emergency fund. Some financial institutions will do this for you with your debit transactions.
3. Save your tax refund if you get one each year. It can be an easy way to boost the value of your emergency fund. You could also adjust your withholding to have less money withheld so that you put money away throughout the year instead of overpaying the government.
4. Limit your extraneous purchases for three months. That doesn’t mean you can’t have fun! Buy items like clothing only if you need them. You can also go shopping in your pantry to reduce the number of trips taken to the grocery store.
5. Once you have the first $1,000 in your emergency fund, consider establishing another account for vacations, maintenance, and other regular costs. Most institutions let you label sub-accounts for specific goals.
An emergency can happen at any time. When you have funds stashed away to manage this situation, then it is much easier to manage the financial issues you might face.