In the hit NBC show This is Us, a married couple plays a game called "What's the worst that can happen?" In this game, they share their deepest fears of the worst outcomes from their current situation. Afterwards, they feel better knowing the worst possible scenario is often also the least likely. It's hard to prepare for the unexpected. Cars break down, AC units break, and sometimes we just really turn our finances on their head. Enter the Emergency fund, or as BudgetsAreSexy.com calls it, the Setback Fund.
We don't have the magic crystal ball, so it's necessary to plan ahead financially where possible. But finances are personal, and savings styles are, too. Many people simply don't have the means to save a large portion of their income, but it's the baby steps that matter. Some people also are content with saving a percentage or dollar amount every paycheck, but others need to work toward a monetary goal in order to save. Whatever your saving style, ensure you have enough to cover any basic obstacles in the road. One way to do this is by planning for common setbacks in your lifestyle. Do you have an old home with appliances starting to falter? Plan ahead for a break, or consider a home warranty to help when your appliances inevitably fall apart at the worst possible time. Do you travel often and last-minute? Consider a credit card with rewards travel points so you can save while you spend. These little ways to save can add up in the long run, and they can provide you with the extra cash in your savings accounts when things get tricky.
It may also help to open multiple savings accounts. This reminds you that there is always more savings than you're counting on in different places. It also helps you stay consistent in saving because you have the extra work of adding various accounts to see how close you are to your goals. Sometimes being forgetful is a good thing, and it helps blind you to how much you've really saved because you only see part of the whole picture! For accounts purely for savings, look for banks with high interest rates or investments with high rates of return.
So you had a bad day, and you needed to dip into your emergency fund. No worries, you've been saving for this moment!
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