Planning for the unexpected can ensure that you are able to weather a financial hardship should you lose your job, have a car repair, or any other unplanned expense. By having savings set aside for emergencies, you decrease the need to rely on credit cards or loans to cover emergency situations. Borrowing funds to cover emergencies can create additional financial hardship. Most experts recommend that you have between three and six months of income set aside in emergency funds, but having any money set aside can help when a financial storm arises.
A recent survey has found that “18- to 30-year-olds are the most likely to have up to five months’ expenses saved up since they might have the benefit of lower expenses due to having roommates, living with their parents or being students.” Your college years can be an ideal time to create and build your emergency savings.
If you’re not sure how to start saving for an emergency, here’s a crash course in what to look for:
- Prioritize your spending – needs come before wants. If going without something could cause you physical pain or injury (like water, shelter, food, medications or proper clothing), then it’s probably a need. If you could get by without it, it’s likely a want.
- Analyze areas of opportunity – identify ways you can save. If you cut out a $4 beverage or snack just once a week, you could save over $200 a year.
- Save extra money – turn birthday money into a rainy day fund. If you don’t have regular income, putting away gift money or profit you make off selling unused items can help start your emergency fund.
Getting Through Tough Financial Times is a resource developed by University of Illinois Extension to help individuals and families weather financial storms. This site provides information on spending habits, managing finances, and smart savings strategies.
Written by Sheri Williamson and Andrea Pellegrini, University of Illinois USFSCO Student Money Management Center