Stay Out of Debt – Save for Emergencies

Be prepared for unexpected expenses with a Cash Cushion just for emergencies.

Start a Cash Cushion — Grow Your Cash Cushion in the Best PlaceTake Care of Your Cash Cushion

Start an Emergency Savings Fund

Like insurance, it seems unnecessary until you need it. Having an emergency savings fund, what we call your Cash Cushion, is the seatbelt on your road to debt freedom.

The Benefits of an Emergency Cache

  • It prevents your debt from increasing. A lucky few of us have never been in a car accident or lost our jobs. Financial preparedness eases the burden of taking out a high interest loan, which only increases your debt.
  • It avoids late fees. Paying off an emergency is a huge suck to your monthly expenses, leading to late payments. A Cash Cushion helps avoid these fees like they’re orange cones on your driving test.

Prepare for 9 Months’ Worth of Expenses

But don’t focus on that huge number. Split it into smaller, more easily digested chunks. We like setting secondary savings goals of $500 or $1,000 and more easily keeping your final goal in perspective. Remember, no amount of savings is too small!

Grow Your Emergency Cache in the Best Place

But where do you put your Cash Cushion? Under your mattress? Buried in your backyard, like a pirate? While those ideas are viable, they arrrr-n’t your best option.

You should put your emergency savings in an online bank’s savings account with a high-yield compound interest rate.

Look for These Emergency Cache Features:

  • A high APY (Annual Percentage Yield) – typically 0.65% to 0.90%
  • No minimum monthly balance required
  • No monthly fees
  • Easy and free deposit process, either by check or online

Why this is a better option than hiding your cash away:

  • It makes your money less accessible, hopefully keeping you from spending it.
  • You will accrue interest on your fund, thus turning your money into more money without you having to do anything.
  • Banks with no physical branches saves money on personnel and maintenance costs, which means less fees for you.
  • While not easily accessible, treasure chests have terrible interest rates and abysmal customer service; trust us.

Take Care of Your Cash Cushion

As you’ve seen, your Cash Cushion protects you as you pay off your debt. Here are four strategies to keep yours in tip-top shape.

Treat Yourself

Building your Cash Cushion shouldn’t be painful. Reward yourself when you reach shorter-term goals. For every $500 saved, you can reward yourself with something small, like a massage or a trip to that new bakery.

Don’t Blow Your Raise or Bonus

The adrenaline rush of a raise or bonus may tempt you to blow it on a speedboat or a large jungle cat. But instead, take a sizable chunk and put it toward paying off your debt or in your Cash Cushion.

Automate Your Savings

Find out how much you can put towards your savings each month. Then set up auto-pay to deposit that amount into your Cash Cushion the day after you usually get your paycheck. It’s out of sight, and pre-assigned.

Pick Yourself Back Up

Don’t let past experiences stop you from setting up your new Cash Cushion. It’s never too late to save for emergencies, just like it’s never too late to pay off your debt.

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