Emergency Funds: What You Need to Know
UPDATED: January 2, 2021 – Learnvest and Chase Blueprint recently conducted a survey of Americans nationwide to ask who is currently saving an emergency fund for … well, for emergencies.
Read on to discover why emergency funds are a good idea, and for some tips on getting started with an emergency fund of your own.
Oh, and if you’re curious, less than half of the survey respondents reported that they do, in fact, have an emergency fund on their back burner; these respondents have saved up an average of $15,000.
Why An Emergency Fund Is A Good Idea
This is somewhat of a no-brainer. Many of us live paycheck to paycheck, just trying to make rent and bills (or even tuition, too!) and still have a life.
Yet, we know that emergencies do happen; we try to put it out of our minds because it’s just too scary to think about what we’d do financially in the case of an emergency. The annoying reality is, of course, that cars break down, people get sick, and jobs are lost.
Beyond that, homes might need repairs, you might need to move for a job, you could need the emergency room or an ambulance, or someone else in the family could have an emergency and you might need to travel.
If you don’t have enough saved up for these potential – and very, very expensive realities – you will have no choice but to go into debt. So, rather than spend all of your money from every paycheck, consider beginning your own emergency fund, and relax a little.
What Your Emergency Fund Savings Goal Should Be
Six months of net income saved up is an ideal goal amount for your emergency fund. At least four months’ income, as much as seven months. With the United States economy the way it is, being fired – or “laid off,” or “managed out,” or “let go,” or whatever nicer, kinder way your ex-boss wanted to say it – from your current job is all too common.
We all know how hard it is to find another job, too; and we know six months is not an unreasonable amount of time to spend looking for your next job.
Or, you might be experiencing burnout from your job, and your mental health is forcing you to quit. You’ll need a way to pay the bills and rent in that time. This should be coming directly from your emergency fund … that way, there’s no debt.
How to Get Started on Saving for Emergencies
Six months’ worth of income saved up?! It sounds so daunting and impossible – but start smaller, such as with a $1000 goal.
Put the fund in a separate account from your normal bank’s savings or checking, so that you place a mental “wall” between you and that fund. It is only for emergencies!
Try using a credit union for this account – credit unions often let you start an account with a smaller amount. Try keeping the emergency money in a few separate locations: in an online account, as cash in a lockbox at your house, and as savings bonds.
To make sure the money gets saved each month, consider an automatic monthly transfer, as if it were a budget item like a bill.