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You’ve been warned time and time again. Disaster strikes taking you by surprise. This could be your car failing to work, a leak in your house, or even worse – an unexpected downward turn in health for yourself or someone you love. And when it does happen, you should just be able to dip into your emergency money fund, right?
Unfortunately for many it’s just not that easy. Even though we all know that we’re supposed to have an emergency fund of 3 to 6 months cash saved up and ready to go at all times, a lot of people simply don’t. The reasons vary, but the consequences could be devastating. To some degree it’s a little bit like driving a car without an insurance policy.
Why Don’t We Have More Emergency Money Saved Up?
So why do most people struggle with putting together an emergency fund?
Unfortunately the issue is not limited to just money we can quickly access in times of a crisis. Other areas of savings such as retirement or funding of specific goals (like the down payment of a house) are also a struggle for many.
In fact the average savings rate in 2013 for America was just above 2% according to The Economist. That’s not surprising considering how optimistic the general public is about the rising tide in the economy and the fact that we all took home less in our paychecks (remember when the payroll tax expired this past New Year?)
No Excuses – Start Saving Right Away:
Though these trends may be the average, that doesn’t mean you have to settle for them. START your emergency fund today by doing the following:
- Take an overall look at your personal finances
- Ask yourself if you were in some serious trouble, which of your expenses could you afford to give up?
- Then divert the money for those funds into a separate interest bearing savings account that you won’t touch.
Rinse and repeat until you have at least 3 to 6 months worth of expenses saved up. This has been a classic metric for most financial planners given the possibility of losing a job and needing several months to cover your bills while you find new work.
In addition, it also makes a great fund in case you have a large one-time expense. If you don’t believe me, call up a roofing company and find out how many thousands of dollars it costs to get a new roof on your house. It’s an expense you won’t want to have to deal with when you’re financially defenseless.
Turning to Alternative Sources:
When a problem takes us by surprise and we don’t have a fund of emergency money to dip into, there are lots of other options to turn to. But each one of them comes with their own unique set of terms that should be fully understood before you engage in them.
One of the first places you can turn are your credit cards. Though the interest rates are high, if you have great credit, you can always do a low interest balance transfer and move the amount owed from one card to another. Then you will have approximately 6 to 18 months to pay off the balance at the low or no interest rate before the high interest rate kicks in.
If your credit rating is a problem, another alternative for cash in an emergency is to simply borrow the money in the form of a personal loan. Recently Fox Business reported that the trend for these types of loans was on the rise ever since the average savings rates have declined. The attraction to these types of loans is the process is quick and you receive the funds almost immediately. The other nice thing about them too is that the borrower can tap into the money as needed. So rather than take out the entire lump balance, they can simply take out as much as they need and make payments on just that amount plus any interest or fees owed.
Obviously the best alternative by all stretches is to simply put together a fund of emergency money that you can tap into at all times. Though it will take some effort and discipline to put one together, it will all be worth it when disaster strikes and you have the resources to respond. Protect yourself and your family.
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