EMERGENCY SAVINGS FUND
Emergencies are unpredictable and can affect your financial stability in an instant. While emergencies can’t always be avoided, an emergency savings fund can help you manage unexpected events by giving you peace of mind and preventing you from going into debt.
What is an Emergency Fund?
An emergency savings account, emergency relief fund, or emergency fund is defined as a special pot of savings that’s set aside to cover unforeseen and unexpected costs.
Like any savings category, it’s never too late to begin building up your emergency fund. The important thing is to start – even starting small is a step in the right direction.
Why You Need an Emergency Fund
Why might a person need an emergency fund? In what way is an emergency fund a form of insurance? What’s the difference between an emergency fund vs a savings account?
An emergency fund is specifically 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 – and it usually kept separate from your other savings account. An emergency fund can help pay for large, unexpected expenses. Here are a few emergency fund examples:
- Medical expenses
- Home repairs
- Car repairs
- Living expenses from unemployment
How Much Should I Save?
Your emergency fund amount varies, because how much you should have in an emergency fund depends on your lifestyle, monthly costs, income and family needs, a good emergency fund ratio 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.
Eight Steps to Building Your Emergency Savings
As with any plan, goal, or strategy, it’s important to consistently check your progress. This will allow you to watch your savings grow and correct the course as needed.
An easy way to keep track of your savings is to set up an automatic account notification, check-in via online banking or mobile banking, or write down a running total of all your contributions.
Once you start saving, review your progress every few months and check your progress against your goal. If you’re able, gradually increase the amount you’re saving each month – even increasing your savings by 1% can provide significant returns.
However, don’t be afraid to decrease your savings rate, either, if your check-in shows that you’re having difficulty making ends meet. The important thing is to figure out what works for you and to not be afraid to adjust as you go along – with a little bit of time and effort, you’ll find a savings strategy that suits your lifestyle!
Want to know more about managing your finances? Check out our Personal Finance blog!
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. Schedule an appointment with a banker or open a savings account online.
FAQs
We’re happy to answer any of your questions – your attentive local banker is always available to help you lay a solid financial foundation. We even have a handy guide to help give you confidence in your personal finance skills, or you can set your own pace with learning modules on Financial Wellness powered by Enrich.
We have several budgeting tips and tricks to help you get started! Or, use our Household Cash Flow Tracker to analyze your finances.
Our savings calculators can help you determine how much you can safely save each month. You can also use our personal finance tool to set and monitor savings goals.
There are several types of interest-bearing accounts that can help add to your savings. Our helpful guide can help you become a savings expert.
