From a flat tire to an unexpected hospital stay, emergencies happen. And, they can catch you (and your wallet) off guard.
While you can’t predict emergencies, you can prepare for them. It’s much easier to fix your car, replace a home appliance, or cover a surprise medical bill when you have an emergency fund savings account. Sometimes called a “rainy day fund,” your emergency fund acts as a cushion for unforeseen expenses so that you can avoid borrowing money or racking up credit card debt.
How much should you put in your emergency fund? Financial experts recommend saving enough to cover three to six months of living expenses. That goal might feel daunting, but with these four tips, you’ll be well on your way to hitting your savings goal.
Build Savings Into Your Budget
Building an emergency fund starts with prioritizing savings. Without financial discipline, it’s easy to abandon your savings routine and use extra cash to pay for a large purchase or bill. So, make a commitment to build savings into your budget and stick to it. By building a budget you’ll know what you need to withhold for necessities and what’s left of your paycheck to save.
New to budgeting? Watch this video where we do a deep dive on one of the most popular budgeting methods for beginners: the 50-30-20 method. This method divides your income into buckets for living expenses, desires, and most importantly, savings. Or better yet, check out our Financial EDGE Academy module on savings to learn about all the different techniques you can use to reach your financial goals.
Choose Where You'll Keep This Emergency Fund
After figuring out what you can realistically devote to your savings plan, you’ll want to make sure your funds are secure and that you’re getting a return on your cash reserves. While your emergency fund isn’t meant to be an investment, chances are you want it to earn as much interest as possible while keeping your money safe.
That’s why high-interest savings accounts, like the accounts offered at TFNB, are the perfect place to keep your emergency funds. A high-interest savings account from TFNB allows you to access your funds whenever the unexpected happens—and allows you to earn interest on the money as you save it! By storing your funds in a high-yield savings account, you’re essentially making your money grow for you until the day you need it. It’s a win-win.
Set Up Automatic Contributions
It’s important to pay into your emergency fund first before you give yourself money for extra wants and desires. When you start an emergency fund, set aside a certain percentage of your take-home pay each month and put it straight into your account. With TFNB, you can set up an automatic deposit on payday and put a percentage of your check into your savings account.
Use Cash Windfalls to Fill Your Fund
After getting a cash windfall from a tax refund or raise, your first instinct might be to blow all of it on those new designer shoes you’ve been eyeing or that vacation you’ve been daydreaming about. While you can certainly build some room in your budget for expenditures like that, consider using a majority of that extra cash (experts say 80%) to fill your emergency fund. You may not feel instant gratification now, but your future self will thank you.
At TFNB, We're Here to Help You Reach Financial Peace of Mind
Ultimately, a rainy day account is about peace of mind. With an emergency fund in place, you’ll be able to handle unexpected expenses as they arise and focus on building wealth in other ways, such as contributing to retirement and paying down loans. Need assistance setting up your emergency fund? Click here to get in touch with a member of our team. Our friendly bankers are here to help you wherever you’re at on your financial journey. That’s why we’re TFNB—your bank for life.