No matter what your job is, it’s best to save for an emergency fund that can cover three to six months of expenses. From medical bills to unemployment and unexpected auto repairs, an emergency fund can help you protect your wealth.
If you don’t start building an emergency fund today, you risk going into debt — like the majority of Americans.
Findings from a recent survey revealed that only 23% of Americans have an adequate emergency fund. Additionally, 26% don’t have any amount saved for emergencies!
As a credit union, we want to help you achieve your financial goals, including building your savings.
In this article, we will discuss everything there is to know about emergency funds, from their importance to how much you should save, and we’ll also share some practical tips on how to build them.
An emergency fund refers to savings an individual may use for unplanned expenses to avoid going into debt.
An emergency fund should be part of any financial plan. It allows you to cover unexpected expenses without using credit cards or applying for a loan.
The best time to build your emergency fund was yesterday. However, it’s not too late to start today.
People usually build their emergency funds for different reasons, including the following:
Building your emergency fund today could mean the difference between surviving future financial challenges and wiping out everything you have.
The short version: You can start small by saving $1,000 monthly to cover three to six months’ worth of expenses.
The long version: The ideal amount to save depends on many factors, including how much you make and your financial goals. We strongly recommend saving enough for three to six months worth of expenses but more for freelancers and seasonal employees.
When creating a financial plan, we recommend setting aside savings first before budgeting for expenses. Start building your emergency fund now to save your future self from potential financial scrapes.
We recommend four ways of keeping your emergency fund: high-yield savings account, money market accounts, certificates of deposit, and ROTH IRA.
Before starting an emergency fund, we recommend setting realistic goals first. To start your journey toward financial freedom, it’s best to set short-term, mid-term, and long-term goals.
Setting goals keeps your focus on financial success, which includes building your emergency fund. Without them, you might never climb out of a vicious debt cycle.
These goals are crucial to financial freedom, but we will concentrate on building an emergency fund for the rest of the article.
As we mentioned earlier, the best way to save is to set savings aside first before allocating the remaining budget for your expenses. Before apportioning your income, set aside a fixed amount for your emergency fund.
Also, you can check out budgeting apps to conveniently monitor your spending habits. There are some free ones you can use to start your emergency fund.
A direct deposit is a process of letting your employer directly pay you through an account instead of giving you a check. Keep in mind that most checks take two business days to clear.
Once you’ve determined the amount you want to set aside for your savings, you can set up a direct deposit account.
Receiving unexpected income is always a nice boost for your bank account! Whether it’s a tax refund, annual bonus, or gift, you automatically think of a hundred ways to spend it.
However, there‘s one way to put it to good use — adding it to your emergency fund. Before making an unnecessary Amazon purchase, think of saving it first.
Since it wasn’t part of your budget to begin with, saving your unexpected income could make a massive impact on your emergency savings instantly. These practical savings habits might help you build your emergency fund in less than a year.
We firmly believe that how much you earn is not as essential as how much you save.
We’ve all heard of multi-millionaires going broke because of their abysmal saving and spending habits. The moment you start earning more, you should also start saving more.
Over time, you can increase the portion of your income dedicated to your emergency fund. For example, instead of saving $200 monthly, you can start saving $250, and then $300.
When you repeatedly put together small amounts, they will make a big difference during financially challenging times.
In today's modern world, you now have choices when it comes to saving your change. You can either do it digitally or physically.
There are now savings apps available on the market designed to help you achieve your financial goals, which are ideal for building an emergency fund.
If you typically transact with cash, you can also keep $1 and $5 bills in a jar until you save enough to make a hefty bank deposit.
Whether you prefer digital or physical savings, saving your change can make a massive impact on your emergency fund.
The second to last piece of advice we want to share with you is to make saving a habit and never stop after achieving a milestone. Once you’ve built an emergency fund for three months, keep going until you hit six and then twelve.
Also, if you’ve spent your fund on an emergency, it’s crucial to build it again. There will always be unexpected expenses in your life; it’s best to prepare for them.
Additionally, once you’ve hit your emergency fund goals, you can start saving up for a bigger home or your retirement.
Once you’ve started building your emergency fund, check in after a few months. Find out if your budgets are still reasonable and if you’re hitting your targets.
If you withdrew funds for emergencies, you could double your effort to replenish them again. If you’ve hit your goal, it’s time to set another one.
In case of unexpected expenses, having an emergency fund can make or break your financial standing. It’s a powerful tool that can keep you from drowning in debt.
It’s ideal to have three to six months’ worth of expenses saved up in an easily available account. You may not build it right away, but you can achieve your desired amount through practical saving habits.
At 121 Financial Credit Union, our goal is to help members of our community achieve financial freedom. If you need an account for your emergency fund, please call us at 904.723.6300 or 800.342.2352.