You never know when it’s going to happen. Your car breaks down. Your pet needs emergency surgery. Your spouse loses their job.
Two things are for certain: Unexpected expenses do happen, and everyone needs an emergency fund. An emergency fund serves as a financial cushion to keep your family afloat without having to rely on credit cards or higher-interest loans.
According to Clever’s Covid-19 Financial Impact Series, 61% of Americans said they had run out of savings or would deplete their emergency savings by the end of 2020 due to the pandemic.
Now is the time to take action to rebuild your rainy-day fund and build yourself a more financially secure future. Having some cash saved up will give you peace of mind.
How Much Do I Need in My Emergency Fund?
Most financial experts recommend having an emergency fund that can cover your daily expenses for three to six months. If you freelance or are self-employed with fluctuating earning potential, you typically need a larger emergency fund.
The Iowa Department of Insurance and Financial Services’s Save4Later program has great resources, including a Building an Emergency Fund online course to answer that very question and get you started today! Within the course you’ll find a calculator to track your monthly spending on items such as mortgage or rent, car payments, insurance, utilities, childcare, student loans, credit card payments, food and other more discretionary expenses such as home improvements, clothing, entertainment, recreation, travel and charitable gifts. Once you know your monthly expenses, it is easy to determine your emergency fund goal.
If you are still struggling, look for expenses you can cut. Stick to your budget to be able to pay more on higher-interest credit card balances and start saving a little each paycheck to replenish $500 to $1,000 in your emergency savings account as soon as you can. What’s most important? Start saving now.
As you increase your savings, look for higher-interest savings accounts such as money market accounts to grow your emergency fund through compound interest. Many credit unions and banks have accounts specifically designated for emergency funds that earn higher interest but are still easily accessible.
Other Ideas to Build Your Emergency Fund
- Treat your emergency fund like a bill. Pay it monthly, or auto deposit it.
- Keep loose change in a jar. Deposit it in the fund quarterly.
- Like unexpected expenses, unexpected earnings can have a big impact on your emergency fund. Deposit cash gifts, work bonuses, side-hustle cash and tax refunds right into your rainy-day fund.
Working slowly toward your goal is fine, just as long as you are making progress. Again, the most important thing is to start saving today. Once you are disciplined in saving and find the joy of accomplishing your emergency fund goal, it makes saving for your retirement goal that much easier.