Editor’s note: Feb. 22-28 is Military Saves week and your BBB serving Central, Coastal, Southwest Texas and Permian Basin will have daily posts highlighting ways to save money. While these tips are written with military members and their families in mind, these are valuable savings tips for all consumers.
We’ve all been there. The car needs a new transmission. There’s an unexpected hospital bill. A broken window in the house needs to be repaired. And there’s not enough money in the bank to cover it.
Why you need an emergency fund
Having an emergency fund of $500 to $1,000 set aside can mean the difference between staying afloat and sinking financially. It also gives you peace of mind knowing that you can pay for unexpected expenses without having to resort to expensive options like putting those bills on a credit card or borrowing from a payday lender, where interest rates average 300-500 percent.
How to get one
So, we know having an emergency fund is a good idea, but the challenge is scraping the funds together.
-Start with the loose change in your pocket. Collect your change at the end of every day in a jar or other container. Americans typically save more than $100 in loose change each year.
-Save your tax return. It can be tempting to splurge and send that money on a luxury or a big ticket item. Use it to start a savings account instead. Tax returns average $2,000, so you’ll have more than enough left to pay off debts and cover other expenses.
-Cut back on any expenses that you can and set the savings aside. Click here for a list of more than 50 suggestions for ways to save. Tips include packing a lunch instead of eating out and making coffee at home instead of buying lattes from a coffee shop.
-Get the whole family involved. Make sure your spouse and children are in on the plan. You can even make it game to see who can spend the least in a single week. Don’t forget to put the savings in your account.
-Set up an automatic deduction. You can ask your bank or credit union to automatically set aside a certain amount in your savings account every month. What you don’t see, you may never miss.
Where to keep it
It’s usually best to keep emergency savings in a bank or credit union savings account. These types of accounts offer easier access to your money than certificates of deposit, U.S. Savings Bonds, or mutual funds.
But not too easy. Keeping your money in a savings account makes it much less likely that you will use these savings to pay for everyday, non-emergency expenses. That’s why it is usually a mistake to keep your emergency fund in a checking account.
You may need at least $100 to open the savings account and a $200 minimum balance to avoid monthly fees at most banks. On most military installations, however, the financial institutions on-base will offer lower minimums or no minimums. Also, during Military Saves Week (in February each year) many of the on-base military banks and credit unions will offer specialized savings products for Military Savers. For more information about who is participating in Military Saves Week click here. To join the Military Saver Community: Take the Military Saves Pledge.