Hello, beautiful people from across the lands! Having savings helps build financial stability and security. 63% of Americans do not have enough saved to address a $500 emergency. Having an emergency fund in place is a vital saving you pour into. A good start would be a $1k emergency fund but ideally, you want 3-6 month worth of expenses saved. This post will discuss two types of saving methods that can help you reach your financial goals.
Emergency Fund
The purpose of an emergency fund is to create a safety net for your savings. This money is only utilized to address the unexpected mishaps of life. Ideally, you want to have 3-6 months worth of expenses saved. Starting with a goal of $1k helps set your savings foundation.
The benefits of having an emergency fund minimize stress, debt, and financial security. Having the resources to address the unplanned puts you in a better financial position.
The losses of not having an emergency fund put you at risk of financial stress, debt and financial insecurity. Not having an emergency fund in place places you in such a vulnerable situation. Building this fund may come with a struggle but it well worth it in the end. Click here to discover ways to build your emergency savings.
Sinking Fund
The purpose of a sinking fund is to set aside money to pay off a debt or a wasting asset in the future. It allows you to build a savings plan to address recurring debts or expenses that will come up.
The benefits of having a sinking fund in place allows you to be ahead of your expenses and build financial stability to address them. It also provides a plan to prepare for upcoming expenses in the future allowing proper money management to take place. Things you can create a sinking for are birthdays, holiday events, 6 month or yearly expenses, oil changes and many others.
The losses of not having a sinking fund in place are similar to the emergency fund. If you are not budgeting in any form it will be difficult to set up sinking funds for line items in your budget.
Action Steps To Take NOW
Step 1: Identify the saving goal for your Emergency Fund (i.e $1k or 3-6 months expenses).
Step 2: Identify at least 1 expense on your budget that could benefit from having a sinking fund.
Step 3: Set up automatic withdrawals for both saving items that are within your budget.
Conclusion
Emergency Funds address the general need of keeping living expenses met when life decides to happen. Trust me it will happen.
Sinking Funds create more secure saving plans for expenses that are expected to be reoccurring or items you would like to purchase in the future.
Having either in place helps build security and eliminate financial stress. Which is numero uno in America.
Do you have an emergency or sinking fund? What strategy do you use to meet your savings goal.
Until next time dream, believe, and achieve.
