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How to Build an Emergency Fund

It's important to have a financial safety net in the face of unexpected expenses.It's important to have a financial safety net in the face of unexpected expenses.


How to Build an Emergency Fund

Financial emergencies happen. If you're an adult and you have a job, a car, a house (or apartment), a child or a pet, something at some time is bound to happen that is going to cost you money above and beyond your normal expenses. Yet, Bankrate's June 2017 Financial Security Index survey revealed:

  • Only 31% have what's considered an adequate savings cushion: enough to cover six months' worth of expenses or more.
  • A quarter of Americans don't have any emergency fund.
  • More than two-thirds of Americans are short on savings.1

And, the need to save for an emergency spans across income levels. "Americans who earn more than $75,000 per year-about a third more than the typical U.S. household earns-report more savings on hand, although almost half, according to a CBS News article, said they wouldn't be able to cover a $500 surprise expense."2

Here are four steps you can take right away to start building your emergency fund:

  1. Decide how much you will need. Financial advisors suggest an emergency savings fund that can cover at least three to six months' living expenses. However, if you are self-employed and your income fluctuates, or if you're retired and more of your money is invested in stocks and bonds, you may want to increase the amount in your emergency fund.
  2. Put together a financial plan or budget that includes a strategy for setting aside money for emergencies. This money should be kept separate from other savings, i.e., retirement or college funds, and not tied to a debit card, which will keep it out of your immediate reach and spending temptations.
  3. Choose the right place and type of account to ensure steady growth for your savings. An account at an online-only bank can be a great choice. It's separate from your everyday accounts, but easy to access your funds if you need them. Interest rates on high-yield savings or short-term CDs tend to be significantly higher than the national average. You'll also benefit from no or low account or maintenance fees, low minimum opening balance requirements, and daily compounding to simplify and maximize your savings potential.
  4. Set up an automatic deposit from a checking account to your savings account each month. This helps you make sure you're paying yourself first and that you won't forget to make a deposit or use that money for other purchases.

Once you've started building your emergency savings, you'll probably find yourself feeling less financially stressed.

With an emergency fund, you'll also be able to avoid having to borrow money to pay for unexpected expenses or tap into other funds that may mean having to pay fees or penalties.

If you don't have emergency savings, start with step 1 today. If you've prepared, review your expenses and add to your savings if they've increased.

With emergency savings in place, you'll have one less thing to worry about when you're faced with life's unexpected challenges.


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