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Create a safety net for life's unexpected events

See why creating an emergency fund is so important, and how it can protect you when unexpected costs arise.

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Create a safety net for life's unexpected events. Life is unpredictable, right? I mean, you can't count on knowing what's going to happen one day to the next, and that can throw us some financial curveballs. Like, uh, let's say when you're, um, when you're car breaks down out of nowhere, and, uh, you're on the hook for a new transmission. Or, uh, oh, the, the home's furnace kicks the bucket, right?

Or, you know what, it may even be something more severe, like you losing your job. So then, how are those monthly bills going to get paid? I mean, these are just a few of the reasons why it's so important to have a safety net to pay for life's unforeseen emergencies. Because if you don't have one, you may unexpectedly and reluctantly have to borrow from somewhere you shouldn’t without a plan to pay it back.

That's when you get into trouble, and debt, wow, it just starts to grow and grow and grow. In fact, uh, a National Foundation for Credit Counseling poll, they revealed that 64% of Americans would utilize a source other than their savings account to satisfy an unplanned $1,000 expense. What's more, another 17%, uh, they said they would neglect existing obligations, like rent or mortgage payments, to pay for the emergency need. So as you can see, uh, there's a lot of people who haven't built an emergency fund yet. But remember, it's never too late to start. Typically, uh, two to six months worth of living expenses, uh, that was the standard to have in reserve, but, um, given that today's average duration of employment is 27 weeks or longer, yeah, nine months, you know, that might be a better cushion for, um, any unforeseen circumstances. Yeah, but you know, even if you can't sock away six to nine months, having some money saved is, is better than none, right?

See if you can put away enough for a month of savings, then add to it here and there as you're able. So, I bet you're thinking, "Where to begin," right? Well, uh, a good place to start is figuring out your monthly expenses, and that means coming up with a budget. Uh, there is a video on this site, yes there is, that gives you step-by-step help creating one. Uh, you know, you can also check the "What To Do Next" section at the end of this video, uh, for a link to some good online budgeting tools. And once you've got a handle on a monthly budget, you'll be able to figure out how much you can reasonably set aside and contribute to your safety net. You know, you'll also have a really good idea as to how much you'll ultimately need to save to cover your expenses in case something happens.

You know, a--a good rule of thumb, now that you know your total expenses for every month, is to multiply that number by three. Uh, reaching that number, that will be your initial goal. Now, let's assume that your initial goal is $10,000. Okay, now if you give yourself two and a half year timetable to save for it, then you're going to need to put away $333 per month, and, uh, $166.67, to be exact, if you make it a five year plan. Um, but, please remember what I said before. Any money is better than none, even five or ten bucks at a time. In fact, you know, if, if you could save five bucks per day, that's less than the cost of buying lunch, uh, you'll have $1,825 at the end of the year, and $9,125 in just five years. Uh-huh. So please, start putting money aside as soon as you're able, and that means before saving for a vacation, before investing, even before contributing to your child's, uh, education, maybe even before taking the family out for pizza. Mm-hmm.

'Cause you're gonna want to have that cushion, not to mention the peace of mind knowing that you'll be able to handle whatever calamities life can throw at you, 'cause they'll be thrown at you. This should be kept in a place where it can earn interest and be relatively easily accessible, but not so readily available that you'll use or--or borrow it from everyday expenses. Um, that's what the term "liquid" means, that you can access it without having it being locked in a hard to get place that requires a lengthy process to access.

Remember, your safety net isn't an investment, right? It's there to protect you against taking on high interest debt or, uh, having to borrow money, which is why you want to gain a little interest on it, but it shouldn't be the driving factor. Stability and accessibility should be your guidelines. So, consider setting up a separate account, especially one that's online. Uh, a savings account or a money market savings account are both good options. Either one of them will give you the liquidity you need, while still earning you a little bit of interest. If you can set up automatic deposits too, that's great. This will make it much easier to contribute every month, and that's going to prevent you from making excuses for not saving. In fact, you know, uh, many banks also offer programs that can help making saving easier.

Finally, um, let's see if there are ways to increase your savings, like brown bagging it for lunch old school, uh, cutting out the expensive afternoon lattes, or, uh, picking up some extra hours at work. You get the idea, right? I mean, there--there's always something you can do to--to find a couple extra dollars here and there. Oh, we also have a video that can help you find some new ways to save. These savings can be added to your safety net without taking away from the other things you need to pay for. I think we can all agree that having a safety net is a good thing, something that will give you peace of mind for years to come. You know, it's one of those universal truths that can benefit us all: a cornerstone that you're laying for a strong, stable, long-lasting financial foundation.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its partners assume no liability for any loss or damage resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.

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