Emergency funds have never been in more demand than now.
COVID-19 has proven the importance of having dedicated savings to sustain you through periods of economic instability.
Long before the pandemic, emergency funds were an essential means for immigrants and their families to manage unexpected medical bills, auto accidents, and more. They remain especially useful to new expats and long-time residents of the United States.
No matter where you are in life, an emergency fund allows you and your family to face the future with confidence. Ready to get started?
Here are 3 ways for immigrants to build an emergency fund:
1. Establish Strong Savings Habits
To establish a reliable emergency fund, you need to be smart about how you spend money and you need to actively save it. Start by setting a realistic savings goal.
- Establish Your Goal: How much should you have saved in your emergency fund? Conventional wisdom suggests the average consumer should set aside two to three months of basic living expenses. In the wake of COVID-19, however, we expect this number to increase. For now, the best thing you can do is set a savings goal and determine how many months you want to put money away for. Check out this free emergency fund calculator to get an idea of what you will need.
- Set Your Budget: Begin by listing your monthly income, all recurring expenses, and any miscellaneous purchases. Whatever money is left over should be put toward your savings goal. As you’re examining your monthly expenses, take a look to see what items can be reduced or potentially eliminated.
- Open a New Savings Account: We’re all human, and emergency funds need to be protected from temptation. That’s why, it’s smart to open an entirely new account separate from your day-to-day savings account. This way, you won’t dip into your emergency fund so easily.
A quick note about debt…
If you currently have debt, it may seem too hard to save several months of expenses. We totally understand! In the meantime, take the pressure off by setting a smaller, short-term savings goal instead. Simply do what you can with the resources you have available.
You can also take advantage of exciting new fintech apps that help you get out of debt. “Spare change” apps (like Qoins) round up the cost of each purchase and debit the extra money to your checking account.
It’s a great way to steadily pay down debt with every purchase, big or small.
2. Capitalize on Big Paydays
If you are a contractor or have irregular income, it’s vitally important to save a large portion of the money you earn.
And as for one-time earning opportunities? Annual bonuses and even cash gifts for holidays or birthdays should be viewed as a golden opportunity to grow your emergency fund.
In addition, financial gifts and tax refunds also constitute one of the biggest payouts of the year for many Americans. While it’s easy to view these refunds as disposable income, be sure to save as much of it as you can while you have the chance.
3. Make Your Savings Automatic
How difficult is it to save money? According to a recent Bankrate survey, less than 40% of Americans have enough savings to cover a $1,000 emergency. Even more surprising, the Federal Reserve found that 44% of Americans could not cover a $400 emergency expense out of pocket.
So why is saving money so difficult?
Much of the struggle comes down to habit and the physical discipline of moving money from one account to the next. Saving money doesn’t happen on its own, and that’s why it’s important to make your savings plan automatic.
If your employer offers a tax-advantaged retirement plan, be sure to enroll in it. This is the fastest way to save and protect your money for future use.
If your employer doesn’t offer these options, don’t worry: you can open your own individual retirement account (IRA) or SEP IRA (if you’re self-employed). Simply contact your bank to set up automatic deposits from your checking to your savings account.
This will ensure that every time you receive income, a predetermined percentage will go straight to your emergency fund. And you’ll never have to worry about it, because these savings contributions will be made automatically.
A word to the wise: if you initiate automatic transactions, keep an eye on your balance to ensure you don’t incur any overdraft fees. You can easily set up automatic notifications to be reminded of any low balances.
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