You Cannot Live Without an Emergency Savings Account
When building your financial future it is extremely important that you establish an emergency savings account. An emergency savings account does two things. First, it eliminates the need for credit cards and second it increases your peace of mind, which in itself is invaluable. Until you take this necessary step and build up your emergency savings account, life’s circumstances will always conspire against you to undermine your financial future.
Less than four out of every 10 Americans maintain an emergency savings account. Consequently, a costly emergency, such as an unexpected unemployment, major medical expenses or a costly car repair send unprepared adults into a financial tailspin that could lead to years of debt. Since the average American does not have a account for emergencies they end up “borrowing” the money from their credit card company and have the honor of paying the money back at 18% interest!
Most financial experts recommend saving between 3-6 months of expenses. However, the task can be daunting, especially if you want to pay off credit cards and car loans. Instead of getting overwhelmed by the prospect of having to save all of that money, break it down into the much more manageable amount of $1,000. When starting out with your financial make over, place the first $1,000 you save into an emergency account. Most true emergencies, such as the car breaking down, can be covered by this amount. If you are forced to draw from your emergency savings account make sure you make it your first priority to replace that money as soon as possible. Once your credit card bills and car payments are paid off you can then take that money and use it to build the necessary 3-6 months of expenses.
We can hear you saying, “But $1,000 is still a lot of money how do I save that much?” This is where the entrepreneurial American spirit kicks in. Pick up some extra shifts at work, work a second job, have a garage sale or learn how to use eBay. Success almost always requires sacrifice and you will be able to build your emergency savings account much faster than you thought possible. Just remember your emergency savings account is for true emergencies, not for paying the pizza man or going shopping once you have exhausted your entertainment budget. It is amazing that once your savings account has been established you begin to experience a lot less “emergencies!”