How to Build an Emergency Fund
- Financial Education
- Frontwave Credit Union
Think you can get by without an emergency fund? Consider for a minute how you would pay for a home repair or medical bill over $1,000. If your answer is to take out a loan or put it on a credit card, you need an emergency fund. It’s the best way to avoid paying the added cost of financing these unexpected expenses.
So, how much should you save in your emergency fund? The short answer is generally between three and six months of essential expenses like housing, utilities, car payments, health care, and food. The longer answer is it depends. If you’re a single-income household or have inconsistent income, you’ll want to save closer to six to nine months of expenses to provide an extra cushion. However, if you have multiple streams of income or work in an industry where you could replace or increase your current income quickly if you needed to, you could probably get by with closer to three months of living expenses.
Saving up three to six months’ worth of essential spending can feel pretty daunting at first. But you don’t have to do it all at once. Try these five tips from our experts to get started:
1. Track your spending.Before you can start saving, you first need to figure out how much of your income you can realistically dedicate to your emergency fund from your overall budget. If you can, try cutting back on nonessential spending even if it’s temporary. For example, skip take out for a month, forego those fancy lattes, or opt for no-cost entertainment options. This can free up money you already bring in to help you reach your savings goals faster.
2. Set mini-goals.When you’re just getting started, sometimes it’s best to set small mini-goals that fit your budget to stay on track. If you start by committing to save just $10 per week, in one year you’ll have saved over $500! Setting specific mini-goals can keep you motivated and help you establish a habit of savings to reach larger goals down the road.
3. Set up a dedicated savings account.Having a separate account to stash an emergency fund can help avoid the temptation of using that “extra” money for anything other than a true emergency. You can just kick back and watch your money grow over time.
4. Automate your savings.One of the easiest ways to get in the habit of saving and build your emergency fund is by automating your savings. Once you set up an automatic transfer or direct deposit, you won’t be tempted to spend that money because it’s out of sight, out of mind!
5. Adjust how much you save.Building your emergency fund is going to take time. As you work towards that savings goal, you may need to adjust how much you’re stashing away. If you get a promotion, receive a tax refund, or get a bonus from your employer, that may be a good time to reevaluate your budget and consider increasing your savings contributions.
Being prepared with an emergency fund will save you money in the long run. It’s a key step to improving your financial outlook – and making your financial dreams come true!
Need help planning for your financial future? Give us a buzz at 800.736.4500 or swing by a local branch to schedule your free financial checkup today!