In life, one of the best mindsets you can have is hope for the best, but plan for the worst. No matter how well we plan and prepare, emergencies happen. Whether it’s an unexpected illness or layoff, a busted major appliance, or any number of other emergencies, the time to start saving for these unexpected events is now. Learn how to start building your emergency fund today.
What is an Emergency Fund?
An emergency fund is a portion of money that gets set aside and is utilized in an emergency where you need quick access to money. A good emergency fund can provide a financial safety net that will protect you and your family from serious financial consequences.
Alarmingly, not only do many Americans not have emergency savings, but they have little to no savings at all. A survey done by GOBankingRates in 2016 found that 35 percent of all adults in the U.S. have only several hundred dollars in their savings account. Even worse, 34 percent have zero. According to this survey, only 15 percent of the population has over $10,000 saved.
What this tells us is that Americans want to save, but saving ranks low on their priority list, or they feel so overwhelmed by how much they need to save that they never actually get started. However, we see the importance of creating a savings “safety net,” so here is a simple way you can get started by answering these five important questions.
How Much Should I Save?
Many people know they should be saving money, but they have no idea how much they really need. Having a realistic goal to reach helps make saving seem more doable. There are a variety of savings suggestions to reference, written and shared by many financial experts. Many agree that a good rule of thumb is to save enough to cover four to seven months worth of expenses. Others say you should have enough saved to cover eight to 12 months worth of living expenses.
There is no one definitive number that every person should be attempting to achieve. Instead of seeing your emergency savings as one fixed goal to achieve, think of it as an evolving fund that should constantly be growing.
How do I Get Started Saving?
A good way to get started saving is to make small, achievable goals for yourself. Even if you just start with the goal of putting $2 into your emergency savings every day for four months, that’s over $200 that you now have saved that you didn’t have before.
Once you’ve begun to complete those smaller goals, then start thinking about how much money you would need to cover a few months worth of salary. If you’re really struggling to save, change your mindset and treat your emergency savings like a bill that you have to pay to your future self. Add it to your budget like you would a car or mortgage payment so it’s a planned expense, not a last minute item to be forgotten or put off until next month.
Need help creating a personal budget? Find out how to budget like a pro today.
How do I find Money to put into my emergency fund?
Saving is easier said than done for many Americans who feel like they are struggling to make ends meet. If you have bills to pay and mouths to feed, a potential future problem that may or may not actually happen often takes a back seat. The tips below can help you create additional monetary resources to add to an emergency fund.
Pay more attention to where your money is going and objectively look at where you could cut back spending. It might mean giving up the $2.50 you spend on coffee every day – which adds up to over $900 a year! – or finally making the decision to cut the cable cord.
You can also be more active seeking out deals when shopping to help reduce expenses. When you go to the grocery store, take a list with you and stick to it to avoid impulse purchases. There are always ways to cut back spending. It just might require a little planning and creativity.
Get a “Side Hustle”
So many people in America have skills and talents that they don’t get to fully utilize at work but that could be used to make money. If you are artistic, sell your arts and crafts on websites like Etsy. If you have a car and live in a well-populated area, you can sign up to drive for Uber or Lyft. Maybe you’re a great baker and make baked goods for local events or gatherings. Or, check within your own town, you may want to take a part-time job at a local store. There are many great ways to make additional money that can go directly to your emergency savings.
Could your hobby actually be a business? Check out this article to find out.
There’s money that we can expect on a regular schedule but sometimes you might get “found” money that you weren’t necessarily expecting. This can include things like gifts from relatives, work bonuses, and even the money you won on bingo night.
The trick with found money is that you need to deposit it into your emergency fund right away. The longer you wait, the more likely you’ll be to spend that money on other things that you might want instead.
Keep the Change
While not ideal for saving large amounts of money, putting change aside every time you make a purchase can be a great way to pad your savings. Just be sure to remember to bring the jar into the bank and deposit it when it starts to really fill up.
Take Advantage of Cash Back
If you want to be able to automatically start saving money without having to think too much about it, cash back checking accounts can be a great way to do that. When you spend with your debit card and earn cash back, that will automatically go into your cash back savings account. Designate that as your emergency fund location so you have at least a portion of your savings being deposited without extra effort on your part.
When Should I tap into my Emergency fund?
Once you have a saved up enough to have a decent sized fund, the next challenge you may face is knowing when and when not to use it. It’s critical to learn the difference between a true financial emergency and a financial inconvenience.
Do Use Emergency Money for:
- A major appliance broke
- Family emergency where you’ll need to travel
- Unexpected car repairs
- Unexpected home repairs
- A large deductible or co-pay for a health emergency
Don’t Use Emergency Money for:
- Your monthly car payments
- Holidays, birthdays, special occasions
- A phone upgrade
Where do I put an emergency fund?
The main appeal of an emergency fund is it’s reliability. This means it’s typically best to put it in a safe and secure place. Eventually your emergency fund is going to grow beyond what you’d want to keep in a jar or hide under a mattress. You’ll want to place it in an account with little to no risk.
Accounts to consider for your emergency fund:
- Standard savings accounts – accrue interest and keep your money safe in a savings account
- Statement savings accounts – this is a special, interest bearing account that helps keep your emergency money separate from the rest of your savings
- Money market accounts – earn a higher interest rate while maintaining access to your money when you want it
- Short-term Certificate of Deposit (CD) – however, do keep in mind that there is a penalty for withdrawing from a CD early, so if you want to always have quick access to this fund it might not be the best option
- Personal Health Savings Account (HSA) – this tax-deductible is specifically used for medical expenses only. Find out why an HSA might be a good option for you
Start Saving Today
The time to start saving for a rainy day is today. Visit one of our 14 convenient locations and open up your emergency fund savings account today.