Tips For Building Your Own “Emergency Fund”

A recent survey by Princeton Survey Research Associates International shows only a quarter of Americans have the recommended six months emergency savings, about half have only three month’s set aside and  - incredibly - over a quarter of all Americans have no emergency savings whatsoever. Here with everything you need to know about building your own emergency fund is Fox 29 Common Cents Lawyer and friend Shari O.

We all know it’s something we should do, so why is it that so few people set aside an emergency fund?

Top Emergency Fund Challenges

  1. Income and Expenses
  2. Savings Accounts
  3. Other Needs

The biggest challenges are, first and foremost setting aside money.  Most of us have not had a raise in awhile, but costs seem to keep going up, leaving little money to set aside for an emergency.  The second biggie is there’s little incentive to set aside the money, especially now, because the interest we earn on the accounts we would typically hold that money in – for 3/5th of us that’s a savings account – is so low.  In fact, 17% of savers are earning less than 0.01%.  That’s ten cents a year on a $1000! And the bank fees can be high – sometimes as much as $15 if your account doesn’t have activity.  And as much as $15 for withdrawals over three a month (even thought the Federal law is six).  Number  3 applies once we do set aside money, lots of times folks wind up using it for things that are not actually the unforeseeable emergencies its intended for, like to pay an insurance premium you should have known was coming.

So what can we do to help set aside money?

Top Tips: Setting Side Funds

  1. Start Small-Realistic
    Start small and be realistic – any amount of money is a good start and once you establish the habit of saving it will become easier.  Rather than setting aside $10K begin with $100 a month. The first step is looking for where any amount, no matter how small, each month can come from.
  2. Where Can You Cut Back?
    If you’ve got it great.  If not, check out costs like insurance, cable features, cell phone plans and other areas where you can get a lower rate or even reduce your services or benefits for a little while so you can put that extra cash in an emergency fund.   As you pay off other costs – for example a credit card – use the amount you were paying toward that to go into your emergency fund each month instead.
  3. Auto Transfers-Part of Budget
    For whatever savings you can find, set up an auto transfer to your new emergency savings fund each month – it should feel like you’re just paying another bill. The benefit of auto transfers is your bank will often waive the monthly savings account fee. 
  4. Big Deposits
    Any big checks, for example, tax refunds or commissions or even proceeds from things you don’t use and can sell, are great ways to sock away a lump sum.

The good news is, hopefully you’ll only have to save up for your emergency fund once!

Once you start saving, how do you keep yourself from spending that money?

Top Tips: Using For Emergencies Only

  1. Be Realistic
    If you’re realistic about how much money you need to cover your expenses and not setting aside more than you can afford, you’ll be more successful in not touching the funds once you’ve saved them.  
  2. Understand Emergency v. Non-Emergency
    You also need to be clear about what an emergency is. 
  3. Account Type
    I suggest using a savings account since they’re government guarantees, easy to access – but not as easy as checking, require low opening balances (90% require less than $100) and generally have no minimum balances if you auto deposit at least $25 a month.   But if you’re worried you won’t be able to keep your hands off, then consider using short term CDs or using several accounts so it more of a hassle for you to get to all of it at once.  

  

Shari Olefson's picture
Shari Olefson

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