How to Safeguard Your Financial Life
Most financial planners would agree that the most important steps to take to protect your financial stability are to set aside funds as an emergency reserve. The concept that you have the fund for emergency and unexpected events is to prevent you from using your credit card and drowning yourself in debt.
How to Get Started
Everyone must save a little extra cash in case of emergencies. However, how much money should you keep? Although the topic of how much money is needed for your emergency fund is open to debate, the minimum amount should be enough to cover your expenses for daily living for at least three months. It is also a great idea to save at least six months of your monthly expenses.
Your personal circumstances and what it takes to provide you with a peace of mind are the elements to help you determine just how cautious you want to be. If for instance, you have well-off parents who have always been supportive and willing to help you in a financial crisis, an emergency fund for three months will be sufficient.
Start by setting aside a monthly amount, for example, 5% of your paycheck. It is advisable to make this automatic. You can set up automatic weekly or monthly transfers from your checking account to your savings accounts.
Furthermore, monitor your spending habit each month and always look for ways to minimize your expenses. If by chance you receive a promotion, bonuses, or other unexpected windfalls, make sure to add them to your emergency fund.
Where to Keep the Cash
Keep your emergency fund somewhere that is both easily accessible and safe. I have heard of people putting their cash in the freezer or placing under their mattresses. Don't be one of these people. :)
The best option you have is to open a savings account or money market account. However, always examine their offer with regards to the minimum balance, interest rate, and other terms.
If you are looking for a great place to place your money, check out M1 Finance.
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