7 Myths About Saving Money In An Emergency Fund
If you’ve made it to this page, you’re probably investigating the ins and outs of emergency funds. Whether you haven’t started one yet or are making changes to your current fund, there are 7 emergency fund myths out there that you need to hear about.
From what counts as an emergency fund to the right ways to set one up, this article is here to help out.
Let’s get started and improve our financial health together!
Emergency Fund Myths
1. You Can’t Start An Emergency Fund If You’re Living Paycheck To Paycheck.
Many people think they can’t start an emergency fund because they don’t have extra cash. Money is tight. There’s always a bill to pay. I’m living paycheck to paycheck. These are all difficult situations, but they aren’t reasons you can’t start an emergency fund.
The truth is, in 99% of situations there is a way to put at least $10 per month into an emergency fund, equaling just $2.50 a week.
Whether it means cutting one item out of your weekly grocery run, skipping that lunch out, or even working an extra hour at a side gig, everyone can and should begin an emergency fund, even if it’s just a few bucks a month.
2. You Can’t Save Until You Pay Off Your Debt.
High-interest debt should be prioritized over saving, especially if it’s a hefty sum; however, many people have debt and still manage to add savings into their rainy-day fund.
First, consider debt consolidation to transfer your debts to a low or no-interest account. This will give you some leeway when it comes to payments.
Next, once you have low or no-interest debts, continue making your payments and even consider increasing them, but not before you start an emergency fund with any amount you can.
3. Emergency Funds Are Investments.
You may be tempted to put your emergency fund into investments. After all, this way your fund will grow, right?
While investments could grow your cash, they could also deplete it if the market went awry. Not only that, but emergency funds need to be made of cash that can be accessed immediately to face a dire situation; investments often take a couple of days to sell, plus the transfer time to move your cash to your bank account.
Keep your emergency fund in cash. Once it’s been established, you can put extra money into investments.
4. You Don’t Need An Emergency Fund If You’re Too Young Or Too Old.
Young people may shrug off emergency funds because they feel secure due to their job outlook, family support, or credit cards. Older people may find an emergency fund replaceable with retirement income. Both are myths.
Emergencies happen to anyone, young or old. If you’re faced with a sudden medical bill or have to fly for emergency purposes, you’ll benefit from accessible cash. Emergencies wait for no one.
5. You Need To Save At Least Three Months Of Expenses In Your Emergency Fund.
Most financial advisors and firms recommend having three to six months’ worth of expenses covered by your emergency fund. This number can be intimidating to thousands of low-income people.
The truth is that everyone’s emergency net is different. Three to six months is a general suggestion, but you could build up to one month’s worth of reserves and be ecstatic with your fund. You could also continue building up for one year and finally feel secure. The decision lies in your hands.
6. You Should Keep Adding To Your Emergency Fund Forever.
There will be a point when adding to your emergency fund becomes ineffective. Once you can cover a full year of expenses without worry, it’s unnecessary to continue to pay into your fund. After all, should something happen, one year is plenty of time to find another financial solution.
After you can pay for your set time – be that three, six, or twelve months – turn to investment options to help your money grow and work for you.
7. You Should Avoid Using Your Emergency Fund At All Costs.
Some people build up their emergency fund only to treat it like an untouchable pile of gold. They get an unexpected bill and prefer to put it on their credit card instead of draining the fund, but this is counterintuitive.
When you constitute something as a financial emergency, it is time to dip into the fund. After everything is settled, you can begin to rebuild it again.
If you still haven’t set up your emergency fund and face an urgent expense, you may want to consider a title loan from Wisconsin Auto Title Loans, Inc.
How A Title Loan Can Help
Title loans use your car’s lien-free title as collateral to offer you up to $15,000 through a title loan. You need your state I.D., car, and title to qualify and can complete the in-person application process in as little as half an hour. If approved, money is dispersed that same day or the next business day.
Prepare For Emergencies Now
If you’re tired of dealing with unexpected bills and lacking the money to cover them, it’s time to start your emergency fund. While you may start slow, emergency funds tend to snowball and can soon grow to an impressive amount.
If you face financial distress in the meantime, a title loan from Wisconsin Auto Title Loans, Inc. may be a solution. Fill out our online title loan form today to learn more about getting your fast emergency cash.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.