Are you among the 41% of Americans who are prepared to cover a $1,000 emergency with savings? If not, you definitely need an emergency fund. Having a savings account specifically for the unexpected (as opposed to retirement and other types of savings) can make all the difference between handling a sudden medical bill or other large expense with cash on hand vs. going into debt or borrowing money from a friend or family member.
In this article we'll answer your questions about emergency funds, such as:
How much money do I need to save?
Where should I keep my emergency savings?
.... and more!
Are you ready to make a personal financial plan that will put you on the path to greater financial peace of mind? Let's get started!
If you're starting from zero, try a $1,000 starter goal. It may be easier to stay motivated if your target feels manageable and within reach. And $1,000 is still a nice chunk of change that could help you weather an expensive car repair, emergency room copay, and more.
Once you reach your initial goal, keep going! Many personal finance experts recommend keeping six months' worth of living expenses in an emergency fund. This gives you a nice cushion in case you lose your job or need to take an unpaid leave for other reasons. Certainly, the current Coronavirus pandemic has taught all of us the importance of preparing for months with a reduced income or no income.
Ultimately, you know your situation the best. If you work in a field with more job security, such as education or healthcare, you may not need six months of income. On the other hand, someone who is self-employed and supporting a family may want to have a whole year's worth of income saved.
Action Step: Set an initial and an ultimate goal that works for your life and budget.
Of course, if saving money were easy, the U.S. would have a higher personal savings rate. So don't beat yourself up about how much (or little) you're able to set aside each month. Just find a weekly, bi-weekly, or monthly amount that fits your budget and set up auto transfers from your checking account to your savings. Automating it makes the habit easy to stick with and chances are you won't even miss the money, especially if it comes out on payday. As the classic adage goes, pay yourself first!
What if I really have nothing extra to set aside for an emergency?
When there's not enough coming in, look for ways to generate extra income. Consider your natural talents and interests and try to turn them into a side hustle. For example, if you love kids you could take on weekend babysitting gigs. Crafty? Choose something to make and sell on Etsy. Have digital skills such as graphic design or copywriting? Advertise your availability on a site for freelancers. Then take whatever you make from your side gig and put it into emergency savings.
Another approach is to cut out a regular expense, such as a coffee run, and put the money you would've spent into your savings account. Keep a change jar at home to fill up and take it to the bank to deposit into savings.
ActionrnStep: Figure out where your savings account deposits are going to come from and how much you can commit to.
The best place for your emergency fund is an FDIC-insured deposit account that will earn interest on your balance. This gives you immediate access to your money when you need it, and eliminates the risk of your savings declining in value. It also separates your emergency fund from the money in your checking account used for daily and monthly expenses.
Actionrnstep: Learn more about Vision Bank's savings and money market accounts.
It may help you to make a list of what you canrnuse your emergency fund for. This will hold you accountable to not tapping itrnfor things like vacation or other discretionary spending. Here are some ideas for your list:
Unexpected medical expenses to maintain your health
Sudden car breakdown or accident
Problems with a major system in your house (if you're a homeowner) such as an air conditioner, roof or electrical system.
A family member passes away and you need to purchase last minute travel to the funeral.
A family member gets hurt and you need to take time off work to provide necessary care.
Action step: Make your own list of approved emergencies and keep it somewhere, digitally or physically, where you can usually pull it out if you need to check.
For more than a century, we've been helping Oklahomans meet their financial goals. Let us help you get a head start on building your emergency fund. Contact us or visit your nearest location in Ada, Durant, Shawnee, Prague, Davis, Meeker, or Sulphur to open a Vision Bank savings account today!
When shopping for a car, it's usually best to start by shopping for a car loan. When you're shopping for a car loan, remember that what it costs you to borrow depends on three things:rn
When shopping for a car, it's usually best to start by shopping for a car loan.
When you're shopping for a car loan, remember that what it costs you to borrow depends on three things:rn
The APR is a percentage of the loan principal that you must pay to your credit union, bank, or other lender every year to finance the purchase of your car. This finance charge includes interest and any fees for arranging the loan. The charge gets added to the amount you borrow, and you repay the combined total, typically in monthly installments over the course of the term.rn
For example, if you take a $15,000 auto loan from your credit union with a 7.5% APR that you repay over four years, you'll owe $362.69 every month. Over a year, those payments would total $4,352.28, and over the life of the loan, $17,409.12. That means it costs you $2,409.12 to borrow the money to buy the car.rn
rnWhen you're looking for a loan, you want the lowest APR you can find for the term you choose. The higher the rate, the more borrowing will cost you.rn
Most APRs you'll be offered will be in the same ballpark. That's because the cost of borrowing at any given time depends on what lenders themselves have to pay for the money they're using to make loans. Rates can vary, so check with the financing arms of car companies promoting their car sales, or local banks and credit unions to find the lowest one.rn
You may even find that rates from car companies are as low as 0% especially if sales have been sluggish and they're trying to entice buyers. Obviously it can be a good deal. But be careful to read the fine print about the conditions that may apply.rn
rnThe term of your loan also affects what it costs you to borrow. A shorter term means higher monthly payments but a lower total cost. On the flip side, a longer term means smaller monthly payments and a higher total cost.rn
rnFor example, the same $15,000 loan at 7.5% APR that cost $362.69 a month for a four year term would cost $466.60 a month for a three year term and $300.57 for a five year term. But the three year term would cost you just $1,797.60 in finance charges $611.52 less than the four year loan. And the loan with the five year term would cost $3,034.20, or $625.08 more than the one with the four year term.rn
Sometimes, though, you still might choose the longer term, and the higher cost, if you can manage the smaller payment more easily than the larger one. After all, it can be worth it to pay a little more over time if you're worried that you might default on your payments.rn
rnBut keep in mind that a car might start to cost you money for upkeep after it reaches a certain age or you've driven it long distances. You don't want to choose so long a term for your car loan that you'll still be paying it off while also having to pay for major repairs.rn
rnYou might hear about balloon loans as you shop around for car financing. These loans require you to pay just interest, generally calculated at an average rate for the term of the loan, and then make a large final payment of the outstanding principal.rn
This style of payment can seem attractive, especially if you don't have the money for a down payment on a regular loan. But it's also extremely risky. If you can't pay the final amount, you might have to take out another loan to pay the final installment, or worse, your car could be repossessed.rn
It should come as no surprise that the more you borrow, the more borrowing will cost. After all, the finance charge is determined by multiplying the interest rate times the principal. So the more you can reduce your principal, the more affordable borrowing will be.
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