Emergency funds are like a rainy day account for a monsoon. They help you get through the worst times in life — the job losses, the lay offs, the broken down vehicles, and the emergency medical procedures — and they help you avoid adding to your debt.
The way you handle your emergency funds in 2016 may be slightly different than the way you’ve handled them in the past.
Keep them Liquid but Still Earning
Emergency funds need to be sheltered from risk and be highly liquid so that you can use them quickly when you need them. Investing them in the stock market isn’t just risky, it also adds a barrier of time between you and your funds. Money market accounts and interest-bearing checking accounts through traditional financial institutions were once a better choice but today, in 2016, online banks often offer an even more competitive option. With online banks, you can get the same immediate access to your funds that you enjoy with a traditional bank, but you also get a more competitive interest rate so you can compound your savings and earn even more.
Use A Rewards Card First
In 2016, we are enjoying some really phenomenal deals with rewards cards. From travel miles to cashback rewards, there are a lot of advantages to using a rewards credit card strategically. One way to earn more on your emergency funds is to use a reward card to pay for the initial emergency expenses. Then, before you are charged interest, use funds from your emergency stash to pay the card off. This can net you a return of cash back or whatever rewards program you have. Please understand that if you use this strategy, it’s important that you have the discipline both to pay the charges off before you get interest and to put any cashback rewards back into your emergency fund.
Control Tech Expenses to Save More
The changes we see in 2016 aren’t just about ways to earn more on our emergency savings. We’re also seeing some disturbing spending trends that are negatively impacting our ability to save for emergencies in the first place. Between a near-constant desire to upgrade to the latest gadget and completely unmonitored spending on apps, many people find themselves spending way too much to put away a significant amount toward emergencies. With experts suggesting we all have at least 6 months of expenses saved up for emergencies, we can’t afford to put a higher priority on tech spending than on saving.
Instead of indulging your desire to upgrade as soon as a new phone model is released or to buy every app and in-app purchase your heart desires, create a budget that limits this type of spending and makes it secondary to contributing to emergency savings.
Whether the year is 2015, 2016 or 2275, chances are pretty good that the need for emergency savings isn’t going to change. The types of accounts you choose or the amount you need to save may vary, but no matter what your calendar says, you must have something put away for the unexpected.