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    Financial Planning | 2 min read

    Emergency Fund 101

    It’s inevitable—life happens. When the unforeseen happens—because it will happen—an emergency fund can be the difference between an inconvenience and a financial disaster. An emergency savings account is designed to cover unplanned expenses such as unexpected vehicle repairs or medical emergencies. Having a cash reserve earmarked for these situations can protect you from having to fund emergencies with a credit card or other unsecured debt.

    A Savings Deficiency

    A recent Bankrate survey reported that 51% of Americans have less than three months savings and 25% have no savings at all. The pandemic no doubt highlighted the importance of emergency savings to cover unexpected hardships such as job loss or prolonged illness. If you reside in the camp of individuals that does not have a fully funded emergency savings—or want to increase your savings—there is no time like the present to establish a plan to build your rainy-day fund!

    How much should I save?

    The size of a suggested emergency fund fluctuates for everyone; no two people or families are the same. Most experts recommend saving three to six months’ worth of monthly expenses, but if you’re single or the sole income earner in your household, you may strive to have six to 12 months’ savings. It really depends on your personal goals and comfort level.

    For Emergency Only

    One important distinction when building and maintaining your emergency savings is to keep in mind that these funds should only be used for true emergencies like covering expenses after a job loss or fixing an unexpected home repair. Regular expenses like oil changes, holiday, birthday, and other gifts, and back to school shopping should be factored into your monthly budget or short-term savings.

    Getting Started

    The first step to building an emergency fund is calculating your monthly expenses. This typically consists of critical expenses such as:

    • Housing
    • Food
    • Personal goods
    • Utilities
    • Debt Payments
    • Healthcare
    • Transportation

    Once you’ve determined what your monthly expenses are, multiply by three, six, or 12, and you’ve got your goal number! It can be initially overwhelming to see such a large number, but remember, you can build your savings a little at a time and eventually you will meet your goal. For example, saving just $25 a week can net you $2,600 at the end of two years.

    It’s also wise to create an additional savings account for your emergency funds, separate from your traditional savings account. Creating an additional account can help you differentiate your everyday savings account from your no-touch-unless-extreme-circumstances-occur-account. Some experts also suggest keeping your emergency funds in a reputable online-only account, making the funds a little more difficult to access to deter spontaneous spending, but not too difficult to access when you need it. And, since you never know when an emergency may occur and there’s no time for a trip to the bank, experts suggest keeping a small amount of cash reserve on hand in a fire-proof safe.

    Celebrate Small Victories

    When you start saving, set small goals and celebrate quick successes. For example, set a monetary goal for yourself, create “checkpoints” along the way to track your progress, and then reward yourself when you’ve accomplished significant milestones. Whether that’s your first $1,000 or when you’ve reached 85% of your goal, do something special (but within budget!) to celebrate and remind yourself to stay the course.

    The bottom line is to start somewhere. Even a small $1,000 emergency fund is better than nothing and committing to a plan to build your fund now will put you on the path to peace of mind for those inevitable situations that happen.

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    Financial Planning

    Victoria Penn

    Victoria Penn is the AVP of Marketing for SWBC. She manages a team of marketers that develop traditional and digital marketing strategies. She also leads the Content Marketing Strategy for SWBC.

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