No matter how hard we try to avoid it, unexpected expenses, like a car or home repairs or medical bills, are inevitable. It’s why it’s good to have emergency savings set aside to help you and your family pay for these sudden expenses without worrying about affording your day-to-day needs.
Unfortunately, most Americans (fewer than 4 in 10) don’t have enough money set aside to cover an unexpected $1,000 expense, according to a CBS news report from early 2021. If you are one of these Americans, don’t panic. The good news is building an emergency fund can be easy if you take the time to create a plan. Here’s how to start:
Determine How Much Emergency Savings You Need
There’s a lot of different advice out there about how much exactly you need in an emergency savings fund, but the general rule of thumb is anywhere from 3-6 months’ worth of expenses. More or less may be needed depending on where you live, how stable your job is, whether or not you have children or dependents, etc. After doing a little research about your needs, start by calculating how much you spend each month on your rent/mortgage, utilities, bills, food, and basic necessities. Multiply that by how many months you want to save for, and you will have determined your goal!
Set up Automatic Transfers into a Savings Account
If you don’t have a savings account, now’s a good time to open one, even if it’s a low-yield one (and if you can afford a high-yield savings account, definitely consider it as higher interest rates will help you reach your goals even faster). Having an account separate from your checking will help you avoid spending your savings and will help you track your progress. An easy way to consistently build your emergency fund is to automate your savings, so you can set it and forget it. For example, if you can afford to put $100 of your monthly income into your emergency fund, set up an automatic reoccurring transfer from your checking account into your savings at the first of the month, or whenever you get your paycheck.
Start Small and Gradually Increase Your Savings
If your initial emergency savings goal seems like a lot, or you realize you can only set aside a few dollars each month, don’t get discouraged. Remember that some emergency savings is better than none, and starting small is a great first step to building good savings habits. But as your financial situation evolves, don’t forget you should gradually increase the amount you contribute to your emergency savings. Paying off debt or getting a bump in your salary, for example, are good times to reevaluate and increase your contributions.
Capitalize on Savings Opportunities
Whether it’s a bonus at work, a tax refund, a monetary gift, or a new side hustle, consider any extra income an opportunity to increase your emergency savings. While it might be tempting to spend it or treat yourself to something nice, putting aside at least a portion of this extra cash is always a smart idea to help build those emergency savings.
Don’t Stop Saving After You’ve Reached Your Goal
Once you reach your emergency savings goal, the first step is to acknowledge and celebrate your success! Saving up several months’ worth of expenses is a fantastic accomplishment that will save you and your family from a lot of stress when the unexpected happens. The next step is to keep the savings going if you can. You could certainly decrease the amount you contribute each month to your emergency savings but maintaining at least a small monthly transfer is a smart idea. After all, when you inevitably dip into your emergency savings, you might save yourself from the step of needing to rebuild your account completely. You could also consider taking your contribution and investing it or opening an Individual Retirement Account or 529 college fund.
Nearly everyone should have some emergency savings, but setting aside enough to cover 3-6 months of expenses is easier said than done. But taking a little time to create and set up a savings plan can make a huge difference the next time you need to pay for an expensive home repair or medical bill.
Start your journey to saving by talking with one of our branch team members. To schedule an appointment, call 866.872.1866 or book one online at unionsavings.com.