April is Financial Literacy Month, a great time for you to learn more about establishing and maintaining good financial habits. It is an opportunity to evaluate your plans to reach your financial goals — and that means planning for emergency expenses, too.
You’ll be ahead of the game if you plan for unexpected expenses well before they happen. One good strategy is to open an emergency savings account where you can stash cash specifically for these expenses. That way you can avoid having to pay for them with a credit card and also avoid potential interest charges that might result.
Regardless of your circumstances, a rainy day fund offers peace of mind and, if you plan well, it won’t derail your other long term savings goals. To get one started, consider the tips below from our Wallet Wise financial literacy program.
Create an account specifically for emergencies:
Many make the mistake of assuming that a standard savings account can also serve as a rainy day fund. However, dipping into savings if your roof leaks, may not be the best solution for your long terms goals.
Start an account that’s only purpose is for emergencies. Ally Bank customers are able to create “nicknames” for accounts to reinforce their purpose.
Set a goal for savings and make it stick:
Set a goal for your fund that could cover most emergencies with a little extra to spare. (Some vehicle repairs can easily run $500 or more.) Determine how much you would realistically need if an emergency were to arise.
Set up a recurring transfer or direct deposit to automate savings. If money is tight, decide where you’ll cut corners to make your plan work. For example, designating $30 a paycheck for a rainy day fund in lieu of going out for dinner one night will help plan for the future.
Fee free is the way to be:
Maximize your savings potential by finding a bank like Ally Bank that won’t charge you a monthly maintenance fee or penalize you for dipping into your emergency fund.
Better yet, an account that earns a competitive interest rate or one that is compounded daily will allow your emergency fund to grow faster on its own. Ally Bank’s savings accounts do both!
Ensure you can access funds:
Many Money Market Accounts come with checks or a debit card to ensure quick access to funds, because emergencies usually don’t happen at convenient times. This allows you to pay a mechanic, plumber or roofer directly without needing to run to the bank.
Everyone is going to face a situation where an emergency strains their budget, and a rainy day fund is a smart way to guard against financial stress.
For additional tips on what you need to know to be smart with your money, visit the Ally Wallet Wise website. And, feel free to share your own personal finance tips in the comments below!