f you are working on creating a good financial outlook, one important aspect of this process is creating an emergency savings fund. Ideally, this fund will eventually have three to six months worth of living expenses to provide valuable protection in the case of job loss or other financial crisis. Typically, this is created after you have a $1000 savings built up. Your emergency fund can be used for any unexpected expenses, including car or home repairs, making these happenings much less stressful. That said, what do you do with money that you want access to, but don’t want to be able to access too easily? Finding the right bank situation for your emergency fund can be a difficult.
You need to be able to easily access at least some portion of your emergency savings without penalties. One of the key benefits to saving is the ability to access your own money in the case of a financial problem without relying on credit and incurring debt. Convenience is essential, but you do not want to make it too easy to spend from your savings. Consider choosing an account you have to access in person or have only a few transactions a month allowed. You may find it smartest to divide your savings into separate amounts and invest them in different ways to gain the most from your money.
When you start an emergency fund, open a money market account at your local bank. If you do not yet have enough to meet the limits for your bank’s money market accounts, a standard savings account will also work well. Money market accounts allow limited access to your money without penalties or difficulty, but do earn a good return. If you use your usual bank for this, you can typically very easily set up direct deposits or automated transfers to make sure that you are saving regularly. Automating the savings process just as you would a bill or your 401K contributions can help keep your savings on track.
Once you have saved around two months’ worth of living expenses, buy a one month term CD with one half of your savings fund. As time goes on, you may be able to choose CDs with a slightly longer maturation time. Always be sure that your money market account would cover a long enough period to allow the CD to mature so you can avoid early withdrawal penalties.
This dual approach to managing your emergency fund will allow you to get the best return on your money while still keeping enough of it accessible that you have what you need available when you need it. Smart savings strategies can reduce your financial stress and allow you to feel secure should a problem come up.