Released March 13, 2009
SEARCY, Ark. - An emergency savings account can help withstand the sudden impact of a personal financial crisis, says Katie Cobb, White County extension agent with the University of Arkansas Division of Agriculture.
Saving money helps ensure people are prepared when unexpected repairs, sickness or job loss creates a financial crisis. "Nobody wants to feel the stress of knowing that they are only a paycheck or two away from financial disaster," says Cobb.
A solid emergency fund should cover at least one month of expenses.
It's a good idea to save more, though. "If you've been saving for a while, increase your emergency fund to a larger amount," says Cobb. Personal finance experts recommend emergency savings for anywhere from three to six months of expenses.
Why save that much?
Bills still have to be paid. "The idea is that if you lose your job or have a health crisis, you would have enough money to pay your mortgage, utilities, groceries, and car payment," says Cobb. An emergency fund can help stretch money while allowing time for people to get back on their feet.
A savings account is a good place to start saving. Not only will the money be safe, it will also earn a little interest. "You'll be less tempted to spend your savings if it's not in your checking account or cash," says Cobb.
As the account grows larger, consider moving part of it into certificates of deposit, or CDs. CDs earn higher interest rates than regular savings accounts and make the money untouchable for a certain length of time. Short-term CDs for one year or less are best for emergency accounts. The minimum deposit is usually $500 or $1,000.
Resist the temptation to spend the money in the CD.
"If you must, you can redeem the CD early, but you'll lose part of the interest," says Cobb. "The idea of a CD is to leave it alone and let it accrue interest until it's absolutely needed."
Arkansas Saves is a program in its second year run by the University of Arkansas Cooperative Extension Service that informs Arkansans about the benefits of saving and financial management. Its motto is "Build wealth, not debt." For helpful information and tools to build financial security, visit http://www.arfamilies.org/arkansassaves.
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http://www.uaex.edu/news/march2009/0313savings.htm
Contact: Lamar James, (501) 671-2187, ljames@uaex.edu
