What is an Emergency Fund?
An emergency fund is a separate savings or bank account used to cover or offset the expense of an unexpected situation. It serves as a safety net, only to be used when financial crises occur. An emergency fund can help pay for large, unexpected expenses,
- Medical expenses
- Home repairs
- Car repairs
- Living expenses from unemployment
How Much Should I Save?
While how much you save depends on your lifestyle, monthly costs, income and family needs, a general rule is to set aside at least three to six months’ worth of expenses. While this may seem intimidating, the idea is to put a small amount away each
week or two to build up to your goal. You can adjust the amount as needed based on your bills, job stability or other factors.
How to Build an Emergency Fund
Step 1 – Set an emergency savings goal and create a plan to save a certain amount each month.
Building any size of savings is easier when you’re able to consistently put money away. Having a specific goal for your savings
helps you stay motivated, especially when you’re first getting started. It will get you into the habit of saving regularly and will make the process less intimidating.
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Step 2 – Have a portion of your paycheck direct deposited into a savings account.
Saving automatically is one of the easiest ways to make your savings consistent and stick with your goal. One common way to do this is
to set up either an automatic deposit on payday or a separate direct deposit with your employer.
Learn more about Direct Deposit
Step 3 – Save money from gifts and your tax refund, if you get one, and collect spare change.
There may be times during the year, like a holiday or birthday, where you receive a cash gift or an influx of money.
While it’s tempting to spend it, saving all or a portion of that money could help you quickly set up your emergency fund. For many Americans, a tax refund is the largest checks they receive all year. Saving your tax refund is an easy way to
boost your emergency fund.
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Step 4 – Regularly monitor your savings progress and adjust contributions as needed.
Find a way to consistently check in on your savings. Whether it’s an automatic notification of your account balance or writing
running total of your contributions, finding a way to watch your progress can offer encouragement and accountability to keep going.
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Step 5 – When you reach your goal and have your emergency savings set aside, keep saving and put longer-term savings into a CD.
Once you have saved enough to cover six months of expenses and have extra cash, you might consider investing the additional funds. You can boost your returns on any excess money with a CD. It’s important to remember that just because you might
have reached your long-term goal to start an emergency fund, you shouldn’t stop there. Your circumstances could change at any moment, resulting in an increase in monthly expenses.
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Where Should I Keep My Emergency Fund?
Emergency savings should be placed in an account that is easily accessible without taxes or penalties, such as a money market or interest-earning savings account.
Ready to start saving? Our bankers are here to walk you through the process. Call to schedule an appointment with a banker or open a savings account online today.