There will be times when life throws unexpected curveballs at you – a flat tire, an unforeseen medical bill, or even a job layoff. With 64% of Americans living paycheck to paycheck, and today’s soaring prices, having money on hand for these sudden expenses is more crucial than ever. Here’s how to build an emergency savings fund so you can protect yourself when the unexpected happens.
1. Determine your savings goal amount
The general rule of thumb is to save between 3 to 6 months’ worth of living expenses. However, as we continue to adjust to a post-pandemic economy, only you can determine the right amount based on your circumstances. Evaluate several factors such as your job stability, rent or mortgage payments, financial support from family, and health. If you see more potential risks in your life, consider adding more to your savings goal amount.
2. Start Saving
The “habit of saving” is more important than the actual goal amount. Find yourself a flexible, high-yield savings account (such as a money market) that can help you grow your emergency savings fund faster, then create a system for yourself to make consistent contributions, such as setting up automatic recurring transfers. Transfers can be easily set up within your online or mobile banking. If you struggle with tapping into your savings for non-emergencies, make it hard to access by setting up your money market or savings under a separate suffix/sub share or other account than your main transactional account and set up transfers directly from your paycheck to that other account.
3. Understand what an ‘Emergency’ is
What constitutes as an emergency? Be aware that some expenses may feel urgent, but that doesn’t always mean it’s an emergency. Avoid using your emergency savings fund on nonessential items and services such as a last-minute birthday gift or fixing a broken TV. Always ask yourself, “Do I need it now to survive?”
An emergency savings fund is an essential part of everyone’s overall financial plan. It can be intimidating at first, but understand that it will take time and every dollar helps.