According to a survey by the Ohio Credit Union League, nearly one third of Ohioans (32.9%) believe their savings could not cover one month of essential expenses. From this, it is easy to assume that a significant portion of the population is only one or two paychecks away from financial disaster. The same survey indicates that a majority of Ohioans (57%) are saving, but not enough to thwart a significant loss in income.
To establish an emergency fund, start by taking the following five steps:Identify your essential monthly expenses. Before you can save, you need to know how much to save. Look at your monthly expenses, and categorize them as essential (rent, mortgage, car, food, utilities, credit card minimums, etc.) and non-essential (entertainment, eating out, clothes, cell phone, etc.). Then add up the essentials to determine your monthly income needs.
Multiply your essential expenses amount by six. Why six? Most credit union leaders think a true emergency fund should have at least six months of essential expenses saved up. While this number may be daunting, it is the best way to avoid difficult financial circumstances such as bankruptcy, loan default, and eviction when you have a loss in income.
Create a savings plan. Let's say you have $1,000 a month in essential expenses, which means you need at least $6,000 to account for six months. Start by identifying how you can realistically amass this amount, and within what time frame - - whether six months, one year, or three years. The goal is to generate a savings habit within your income and budgetary means.
Don't get frustrated. The slowly accumulating funds in your savings account can be frustrating. If you find yourself losing interest, try incorporating a visual around the house. For instance, keep a jar close by and fill it with loose change and any money that you save by eating in or avoiding your daily coffee.
Ask for help. The more you ask, the better informed you are. Talk with one of our financial advisors and let us help you identify ways you can save. To speak with a Telhio member services representative today, call 614-221-3233.
The Financial Five is a monthly consumer column from Ohio's credit unions that provides important financial tips to consumers
