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5 Emergency Funds That Will Prepare You For The Unexpected

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5 Emergency Funds That Will Prepare You For The Unexpected

If there is anything that 2020 has made glaringly apparent, it’s that the future is a series of unforeseeable events. This unpredictability has reinforced the importance of financial security, putting an immense amount of emphasis on savings.

An overwhelming 87% of Americans have reported that nothing makes them happier than having their finances in order. This has, in turn, caused many individuals to start utilizing money management apps such as Simplifi by Quicken, to assist in taking control of their finances.

In mid-2020 the amount of money held on credit cards in the U.S. hit $413.7 billion, according to an annual report from NerdWallet. Within each American household, the analysis estimated the average credit card debt to be $6,124.

Planning for the unexpected ahead of time is essential in keeping you away from credit card debt. And one way to help keep you out of the debt cycle is through emergency funds. 

An emergency fund is a way to save for a specific expense by adding a certain dollar amount to that fund every month. The goal of an emergency fund is to gradually build your way to a certain expense so that by the time it comes to put the money down, the burden or worry of spending a large amount all at once dissipates.

So, in contemplating what unexpected expenses you should save for, below are 5 emergency funds to consider.

Car Insurance & Repairs

While car insurance may not be an unexpected expense, it is a sizable one. The average cost of car insurance in the U.S. is $1,348 per year. Whether you have a yearly or six-month policy, having to put down that amount of money at once is never ideal.

Going off the average amount, try setting aside $112 a month into an emergency fund, so that by the time that bill rolls around it won’t feel overbearing. 

This could also be extended into other car expenses such as maintenance and repairs. Adding a small dollar amount to your monthly emergency fund, in addition to your insurance payment, could provide extra money for costs such as tires, brakes, or a new transmission. 

Medical    

An unfortunate reality of healthcare in the U.S. is that health insurance does not cover everything. It’s part of the reason why Americans have accrued over $45 billion in medical debt
Especially if you have a pet, consider setting aside a fund for unexpected medical bills. This could soften the financial blow at a time where your health is the first priority.

Home Repairs

It is the inevitable fate of every homeowner across the globe that something in their home will break. In fact, home maintenance is one of the biggest reasons why so many people choose to rent property over purchasing a home.

And unfortunately, there’s no such thing as a cheap home repair. For example, the average national price to install a new roof is $6,626, the average cost to repair an existing roof costs $653, and repairing a water heater will likely cost about $480, according to research from HomeAdvisor.

According to HomeAdvisor’s 2018 True Cost Report, American homeowners spent an average of $1,105 on home maintenance and $416 on home emergency spending.

Travel

There are moments where the need to book a flight comes unexpectedly. The cost of a plane ticket should hopefully never be an obstacle in the way of seeing a loved one. And putting that cost on a credit card could add more stress to an already disheartening situation.

Airfare prices are down in 2020 as a result of the pandemic, and several airlines such as American Airlines Group Inc (NASDAQ: AAL), Delta Air Lines, Inc. (NYSE: DAL), and United Airlines Holdings Inc (NASDAQ: UAL) announced the elimination of change fees to entice air travelers. Even still, many expect prices to rebound in 2021 as the economy recovers. 

Gifts

As we begin to inch towards the holiday season, now may be an opportune time to start an emergency fund for gifts. This could also be done over a year and tapped into for birthdays, anniversaries, weddings, or any other celebration. 

Allocating money specifically for gifts gives you a specialized account so that you know you always have the funds available when need be. Whether it’s a last-minute Amazon.com, Inc. (NASDAQ: AMZN) Prime pick, or a Bed Bath & Beyond Inc. (NASDAQ: BBBY) registry gift, having that money on hand makes the gift-buying process less stressful.

For money leftover at the end of the year, you could roll it over to the next year, put it into a high-interest savings account, buy a gift for yourself, or donate the remaining amount to a charitable cause.

Utilizing Financial Tools

Online budgeting tools are a great resource for managing your finances and tracking savings goals. But because everyone’s financial situation is different it’s important to find a tool that is completely customizable to meet your needs.

Simplifi by Quicken is a new budget planning tool that helps people achieve just that by replacing a traditional spreadsheet with a visual experience that makes it easier to create those necessary nest eggs. The app provides a consolidated overview of all of your spending, bank account statements, upcoming bills, loans, and of course, savings goals. 

Simplifi allows you to create and track any savings goal you may have including emergency funds. It can also help make sure you set these aside from your monthly bills and expenses and don't end up spending them. Within each savings goal, you can set your target dollar amount and Simplifi will show you how much you need to contribute per month in order to achieve that goal as well as your current progress.

The app also features a spending watchlist which shows how much money you are spending on average in various categories, which are customizable as well. For example, the watchlist could show you how much you spend on restaurants and eating out. It will show the amount spent on this category per month, the average total, and individual transactions. Tracking your recurring expenses is a good way to figure out if you are overspending in certain areas and where you can cut back. Try pinpointing any unnecessary spending you observe and reallocating that money towards your emergency funds.

To get started and begin setting up your own savings goals, you can try Simplifi free for 30 days to make sure you’re always prepared for the unexpected.

Photo by Kelly Sikkema on Unsplash

 

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Posted-In: budget planning budgeting tools money management money management tips personal finance software QuickenNews General

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