Building a nest egg is definitely something to be proud of. When you've been carefully avoiding exuberant spending and putting away extra cash in your emergency fund, it can be hard to know when the right time to spend it is. After all, you've worked hard to build your nest egg. However, there are some precautions you can take to protect your savings, while still allowing you to spend some when absolutely necessary.
The events of 2020 taught Americans a lesson in finances, according to a study from Morning Consult, which showed that more middle class Americans have increased their saving habits. Emergencies are an unfortunate inevitability that everyone has to face in their life, but a robust savings account can make all the difference in the world.
How to build a secure savings account
The first step in being ready for an emergency is creating a nice cushion for yourself in case of a rainy day. Ideally, if an unforeseen event requires you to take out some money that you had not budgeted for, you will have some remaining capital left. So how much money should you save? The answer is dependent on personal circumstances and a number of situational factors.
A common rule of thumb is to have up to six months of living expenses saved. This can seem overwhelming and impossible for some, so it is okay to start with one month. Save what you realistically can when taking your salary and necessary spending into consideration. Here are some factors to consider when thinking about how much to save:
- Number of people in your family unit.
- People who contribute to household expenses.
- Monthly expenses.
- Financial stability as related to income sources
These are only a few things to help you get started and creating good savings habits is a great goal to strive for.
Spending your rainy day fund
When it comes to spending your safety net fund, sometimes there is no option. After all, that is why it's called a "rainy day fund." When that rainy day does come, it is appropriate to spend the money in your savings account. Keep in mind that your safety net is only to be used for true emergency situations.
Satisfying a late night online shopping spree urge or starting any unnecessary home renovations doesn't count and you might regret spending your money this way when you really need it. Here are some crisis events that you may prepare for:
- Health related problems.
- Natural disasters.
- Veterinarian visits.
- Vehicle damage repairs.
Preparing for an emergency may not be the most pleasant thing to think about, but you will be glad you did when an accident happens. Reach out to The Federal Savings Bank to learn about how to improve your savings habits and to set up a savings account today.
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