Dear Carrie, I’m worried about whether I’ll be able to pay for any unexpected emergencies that might come up. How can I prepare?
Nobody likes to think about worst-case scenarios, but financial emergencies come up for many of us at some point in our lives. Have you ever needed a car repair or had an unexpected medical bill, or even lost a job? All these uncertainties in life can jeopardize your finances and your happiness. I know you can’t predict the future, but you can prepare for it by creating an emergency fund. Believe it or not, 40% of Americans wouldn’t be able to pay for a $400 emergency without selling something or borrowing money. I don’t want you to be part of that statistic. So how can you prepare for the unexpected? The most important thing you can do is build up a cash reserve that will cover three to six months of necessary expenses… I mean, important things, like rent and groceries. I know it can be tough to save up that much money, but you can do it slowly. Here’s how to get started. Spend less than you earn. Make monthly payments to your emergency fund a part of your budget, even if it’s only $25 a month. And make it even easier by setting up automatic deposits. Keep this money in a checking, savings, or money market account, so you can access it quickly and easily if you need it. And whatever you do, don’t touch the money unless there’s a real financial emergency. If you do need to dip into your emergency fund, remember to replenish it as soon as you can. As a last resort, you may need to rely on credit in an emergency, so try to avoid carrying a balance, and make sure you have a good credit score, so you won’t be charged a higher interest rate. I hope these tips help you get started. There’s no better time than the present to prepare for your future. Congrats on taking the first step. For more ideas, please check out my Ask Carrie column.