An emergency fund consists of money you save to be used in the event of an unexpected circumstance or expense. For example, if your basement floods and you have costs not covered by homeowners insurance, you could dip into your emergency fund.
Other situations in which people would typically count on the money in their emergency fund include loss of a job, an extended hospital stay, replacing a major appliance, or a down payment on a new car if an accident leaves yours totaled. In all of these situations and more, it’s good to have money to fall back on to help you through the unexpected.
So, how much money should be in your emergency fund and how can you start saving? We’ve compiled these tips to help you get started.
Choose the Right Account
First, you need to decide where to put your money. Your emergency savings should be an easily accessible source of funding. That is, you want to be able to get the money out quickly when necessary. Consider adding a PSECU money market. As long as your balance is above $500, you’ll earn more interest than you would using any other savings share, and you can easily access your funds if you need them.
Here are some features to look for when opening a money market:
- No monthly fees
- Dividends paid regularly
- Anytime, anywhere accessibility
- Low minimum balance requirement for higher dividends
Calculate Your Needs
As a general rule, most people aim to put at least six months’ worth of living expenses in their emergency fund. It may take time to get to that point, but small contributions every week or month go a long way.
To determine how much you should save, add up your monthly expenses, including the following:
- Mortgage or rent payments
- Utility payments, including gas, water, trash, sewer, and electric
- Telecom payments, such as cable and the Internet
- Insurance payments, including auto, health, and life
- Transportation costs, such as gas and public transportation
- Other expenses, including medications, monthly gym memberships, subscriptions to audio or video streaming services, and other recurring costs
You’ll also need to include any monthly debt payments in your calculation, such as student loan payments or credit card debt.
Save and Funnel Money into Your Emergency Fund
Look for ways to save money and cut costs to increase the amount you put into your emergency fund. Making small changes, such as turning off the lights when you leave a room and raising the temperature in your home by a degree or two in the summer, can save you money on electricity. Switching to generic brands at the grocery store or signing up for loyalty programs can also save you money. You may even want to make an effort to earn extra money for savings by cleaning out your home and selling unused clothing or other items at a yard sale.
Additionally, putting your financial windfalls, such as tax return refunds, into your emergency fund will help build savings up faster.
Contribute Regularly to Your Emergency Fund
In order for your savings to grow, you must contribute to your fund regularly. To keep yourself on track, build emergency savings into your budget. Give up one dinner out per month or skip a night at the movies and stay home instead. Small changes like these will add up and give you a cushion to add a little extra to your emergency fund each month.
Another way to ensure you put money into your emergency fund regularly is to automate your contributions. You can set up your checking account to move money into a savings share each month. Then, saving becomes an established, regular part of your routine. Your account will grow slowly and steadily without much extra effort.
Having an emergency fund can set your mind at ease and allow you to pay for unexpected expenses. For more money-saving tips, visit our WalletWorks page.