We’ve all experienced some sort of financial emergency, whether it’s car trouble or an unexpected vet bill. But having extra funds set aside makes all the difference. Did you know that 68% of people believe they would be unable to cover their essential living expenses for a month if they were to lose their primary source of income? What’s more, 57% of U.S. adults cannot afford a $1,000 emergency expense. 

To ensure you’re prepared for unsuspected fees, repairs, or bills, here’s what you should know about starting an emergency fund.

What is an emergency fund?

An emergency fund is a bank account with money set aside to pay for any large, unexpected expense, including car or house repairs. Without savings, even a small emergency can negatively affect your finances. To take full advantage of this emergency fund, you should only use it in the event of an emergency and spend it sparingly.

How much should you save?

The amount in your emergency savings account depends on your income and finances. If possible, it’s best to have enough money to cover three to six months of living expenses and essential bills. An emergency fund safeguards against racking up high credit card debt or taking out high interest loans. Check out this Emergency Fund calculator to get started.

Where should you put the money?

You can use several accounts or savings methods when starting an emergency fund. Here are two options to get started:

• A high-yield savings account typically has a higher annual percentage rate (APY) than traditional savings accounts. This account earns compound interest, meaning your money can earn interest on the principal amount and previously earned interest. Additionally, when you need to access the funds, you can make a transfer between accounts online or in-person.
• A money market account is another savings account alternative earning a higher APY than traditional bank accounts. It may also come with a debit card and check-writing capabilities, allowing you to conveniently access your funds in an emergency.

Six ways to build up your emergency savings.

Now that we know the basics, here are six tricks for building your savings.

1. Set a monthly savings goal: Every dollar counts. Make a point of setting aside a specific amount every month so it becomes a habit. ‘Cash stuffing’ is a viral budgeting hack inspired by the envelope saving system. It’s designed to help you set money aside to pay expenses or build an emergency fund.

2. Automate your savings: You can’t spend what you can’t see. Set up automatic biweekly or monthly transfers from your checking to savings. While automation helps you focus on other things, you should still monitor your accounts to avoid overdrafts. In fact, you can set up customized Account Alerts to receive a text or email when money is transferred and withdrawn or when a certain dollar amount (goal) is met.

3. Save tax returns: When tax return season comes around, you should consider depositing your refund directly into your savings account. While you may be tempted to spend it on a vacation or new technology, these funds can be used to start your emergency savings or help pay down credit card debt. Additionally, you should sign up to receive your tax refund electronically to avoid any possibility of mail theft or fraud.

4. Cost cutting: Sift through your expenses and cut or consolidate what isn’t essential. Unused or outdated subscriptions, such as memberships, gaming services, or dating apps, can go unnoticed when the dollar amount is minimal, but over time, it adds up. That money saved can be transferred into your savings account or used to pay down debt.

5. Earn extra cash and save it: Consider picking up a part-time job or side gig and put that income directly into your emergency savings fund. Read 8 Side Gigs to Land Earn Extra Cash to get started.

6. Check your progress regularly: Holding yourself accountable is the only way to reach a goal. You can set a reminder on your phone to go over your finances once a month. If you haven’t met your goals yet, don’t get discouraged. Everyone moves at their own pace.

Ultimately, how you manage your money is a personal choice that varies based on your expenses, needs and income. Saving what you can each month is the key to staying afloat when you need it the most.

For more ways to save, check out our Budgeting page at efirstbank.com/education or our Savings Tips section at efirstbankblog.com.

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