Urgent Needs Call for Emergency Funds
We’ve all been in situations where we seem to be strapped for cash, whether it was a medical emergency or unexpected household expense. No matter where the shortage stems from, we feel a sense of panic and uneasiness when assessing our financial situation in that moment. However, combatting falling short on funds can be accomplished by starting an emergency fund. Keep reading to learn more about an emergency fund, how much emergency fund savings you should have, and easy ways you can start saving those funds today.
What is an Emergency Fund and How Much should You Save?
An emergency fund is a savings account (separate from general savings) that generally is held only for emergency expenses. Self-explanatory, right? Well, sort of. But what exactly justifies an emergency expense? For some it may mean being without hot water, while for others, it may mean that pair of shoes they’ve been eyeing that just went on sale… But we should probably avoid using these funds for expenses like the last one, deal?
Now, let’s dive into the kinds of expenses you should plan to use your emergency fund for:
Household expenses like leaky roof, natural disaster damage, broken appliances, etc.
Medical costs like surgeries, emergency room visits, or other large medical bills
Car emergencies such as a costly repair or an unexpected collision
Last, but certainly not least (especially in amount), loss of job, temporary unemployment, or other hit to income
This is just a short, generic list of ideas on what should be considered an emergency expense, but use your best judgement when tapping into those emergency savings. The real question, though, is how much we should strive to put away to feel financially stable? A good rule of thumb for an emergency account is to have saved up about 3 to 6 months of your monthly income. Currently, the average duration of unemployment in the U.S. is at 22 weeks, so having your 6 month’s expenses saved up will cover you nicely until you find a new employer. But, you do need to walk before you can run. Make an initial goal of getting a savings account of $500 to $1,000 started before diving into trying to save up larger sums.
Steps to Starting an Emergency Fund
Calculate how much you need to save up.
This can easily be done by calculating your regular monthly expenses (rent, car payments, utilities, prescriptions, etc.). Take the sum of your monthly costs and multiply it times 3, 6, or whatever number of months you’d like to have expenses saved up. Don’t let that number scare you, though! Rome wasn’t built in a day and the same is true about your savings.
Select the best savings account for you.
A savings account is the best place to store your emergency funds because you will earn interest on your investment, but still have the flexibility to access the funds immediately without penalty. Although it may be tempting due to their high annual percentage yield (APY), avoid using savings options like a 401k or CD for an emergency fund because you have to keep the money in there for a set time. The most important thing to look for is a savings account with a high yield percentage. APY is the percentage of interest you will earn on the money you keep in the account over the course of a year. The higher that percentage, the more you’ll earn just for keeping funds in the account! When selecting the best savings account, also factor in any monthly fees or minimum balance fees associated with the account. Even if there’s a high APY, if you get dinged with monthly fees or hit with a minimum balance fee because you can’t maintain the amount required, you could be hurting yourself rather than helping yourself. If traditional savings accounts aren’t the right option for you, you can always keep the cash stashed in a piggy bank or other safe place to avoid it getting mixed in with other funds from your checking account!
Determine the amount you’re able to save every month.
This number will vary and may be small to start with, but if you find ways to save money on your everyday expenses, then you will find it’s even easier to save than you thought. Try to put at least the same amount into your savings every month, or, if you’re lucky, keep adding an additional amount from the previous month. However, don’t overextend yourself because not being able to pay your electric bill is much worse than not being able to save money that month.
Watch your money grow!
You were frugal and it’s really paid off for you. Peace of mind is right there in your savings account. Now you can start taking any money you were putting in here and invest it into other savings options that you wouldn’t need to tap into abruptly. Remember to only use your emergency funds if you really need it and to manage your money well by budgeting the same way you did when building the emergency account.
Things to Remember When Building an Emergency Fund
The idea of saving money is hard, especially when you’re already struggling month to month to pay bills like many of us do. The most important thing is to just start saving. You may not be ready or have the means to start a savings account for an emergency fund and that’s okay. A few ways to start your savings includes:
Anytime you break a $20 bill and have some spare $1 or $5 bills, put those into a jar.
Keep change in a spare jar and cash those in at the end of the year. You may be surprised by how much those pennies can add up!
Find ways to cut costs on your monthly expenses
Think about finding supplemental income like seasonal or temporary help
Put your tax refund into savings
Take the Process as Slow as You Need To
It takes everyone a while to build their savings and emergency funds. This isn’t a race and you aren’t competing with anyone. Your financial stability is a goal you are working on for yourself. Stay positive, keep stowing away spare cash, and eventually the hard work will pay off. This process, unfortunately, just takes time.
It Really Is Only for Emergencies
We know, we know. The shoes are so cute or that TV is on sale at the perfect price. We understand. But luxuries and emergencies should not be put into the same category. Keeping that money saved is important so you can keep yourself from going into major debt if an emergency were to occur. As tempting as it is, try to keep your hands out of your emergency savings account and only dip into those funds for real cash emergencies.
Handling an Emergency without an Emergency Fund
Saving is hard. Times are tough and sometimes having any money left over after bills are paid for the month can seem nearly impossible. It’s always smart and we highly encourage you to start saving for your future in any way you can – but for times when cash is pretty slim, Speedy Cash offers services to fill this need. If you have a cash emergency that you can’t cover, a payday loan could be a temporary solution to get fast cash. But remember, they’re just temporary - payday loans are typically due to be paid back on or around your next payday. Payday loans are not a replacement for an emergency fund. As soon as you can, you should start saving here or there, whether it’s in a jar or in a full-fledged savings account.
Don’t Let Emergencies Get the Best of You
Emergency expenses happen, but with some planning and preparation, you should be able to save up enough to generally cover costly unexpected expenses. Remember to budget and just start saving money where you can in whatever way you can. Do not get discouraged if it isn’t growing as quickly as you’d like, because it will get there. Every little bit counts. If you can’t save much one month, reevaluate your budget to see where you can start saving the next month. It takes time and some trial and error, but finding the money to save for emergency situations is worth it. And remember, if you find yourself in a pinch without the funds to cover an emergency, Speedy Cash is always here to help!