An emergency fund is supposed to contain three to six month’s worth of living expenses. You’ve probably heard that piece of financial wisdom before. What might not be so clear is how quickly you should be able to hit this popular target.
Why Do You Need to Know a Timeline?
Timing is everything in personal finances. It’s what makes the difference between an annoying car repair and a financial emergency. If you’re too slow of a saver, an unexpected tire patch or brake light replacement could arrive before you’re amply prepared.
What happens then? This is a scary situation to be in, but you have options. If you can’t postpone essential repairs, research personal loans online. As long as you are approved, an online loan can bridge the gap in your savings, so you can make urgent repairs as soon as possible.
Most online personal loans apply rates and finance charges to the amount you owe. You need to know these important facets of a personal loan before you apply online. Collect these need-to-know details from several lenders, comparing how much each will charge you to borrow. This way, you can make an informed decision, choosing from the best on your list.
What Factors into Your Timeline?
Timing depends on a few of things:
- The size of your contributions.
- The frequency of these contributions.
- The rate of return on your savings account.
Someone who is able to save $500 twice a month with an interest rate of 5% will reach a target of $10,000 long before someone who can only save $100 once a month with an 0.05% yield.
You can see how this works in action by playing around with this savings calculator and changing the frequency and size of your contributions. Make sure to adjust the interest rate to show how compound interest can help you achieve your goals faster.
How Can You Increase Your Savings Timeline?
Knowing what we do about size, frequency, and interest, your task is two-fold. You have to figure out a way to increase what you save each month and clinch a high-yield savings account.
Earning More Interest on Your Savings
The latter is easier now than ever thanks to today’s soaring interest rates. Many banks, credit unions, and neobanks offer 5% on their high-yield savings accounts.
You may find a higher interest rate with other accounts, like money market funds and investments. However, they often come with account restrictions that limit how often or quickly you may withdraw money. These restrictions can interfere with how easily you handle your next emergency, so you should be cautious about using them as your fund.
Saving More Money Each Month
Boosting your monthly savings is easier when you have a budget. Check out these budgeting apps to simplify this next step. They help you review the money you spend on essentials and not-so-essentials.
The non-essentials are prime pickings for savings. Do you really need to buy those new leggings, subscribe to your fourth streaming service, or pick up takeout on your way home every night? Anything you manage to reduce or eliminate entirely will free up cash to save.
Find Balance to Accelerate Your Savings
A popular budgeting guide recommends spending 30% of your take-home pay on non-essentials. But that’s only if you pay your essentials with the remaining 50% of your take-home pay, leaving at least 20% of your paycheck for savings.
If you can’t hit this target, you may have to go back to the drawing board and reevaluate your income, spending, and essentials. Once you figure out how often you can save, you’ll have your answer of how quickly you’ll have that three-to-six emergency fund.
