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4 Strategies for Building an Emergency Fund

Life happens. Pipes burst, cars get rear-ended, or unexpected medical bills appear. An emergency fund can help keep you on track financially, even when life takes an unexpected turn.

In practice, saving money—no matter what you’re saving for—can be challenging. A recent NerdWallet survey found that although 9 in 10 Americans have a regular saving habit, 45% of Americans could cover an unexpected $1000 cost.

These emergency fund tips can help you get started wherever you are—and keep going, even when the going gets tricky.

What to Consider When Starting an Emergency Fund

One challenge of saving for emergencies is that, for some, the expenses they face now, in the present, feel more pressing than those they may experience in the future. Here are a few thought-starters that can lay the groundwork for building your emergency fund.

How Much to Save

Your financial landscape is unique. It depends on your lifestyle and the kinds of expenses that you pay regularly.

Most financial experts agree that a solid emergency fund has enough to cover three to six months’ living expenses. 

How much is that for you? Tally up your critical monthly expenses:

  • Housing costs (mortgage or rent)
  • Utilities (like electricity, water, and internet)
  • Healthcare (including insurance premiums)
  • Transportation (whether public transit, Uber or taxi fares, or car insurance and gas money)
  • Debt repayment (for credit cards, student loans, car payments, or the like)

Knowing these numbers can help you set a clear goal for yourself.

In addition to your critical expenses, consider your unique situation and adjust your numbers accordingly:

  • Are you financially responsible for anyone else, like children or other family members?
  • How far away are you from your family, and would they be able to help you during financial hardship?
  • How much debt do you carry?
  • If you’re in a partnership and lost your job, how would that loss of income impact your shared financial landscape?

What Constitutes an Emergency?

Once you’re setting aside money for emergencies, giving yourself some rules for how and when you’ll tap into that account can be helpful. You may consider only using this account for moments like:

  • Unexpected loss of income (for example, getting laid off)
  • Damage to your home that insurance doesn’t cover (like damage from a natural disaster)
  • Issues with your car that insurance doesn’t cover (like mechanical malfunction or damage above your policy limit)
  • Unexpected medical bills due to an accident or illness

Tips for Starting an Emergency Fund

The hardest part about building an emergency fund is getting started. Use these emergency fund strategies to get the ball rolling.

Start Small

As with any savings goal, building a consistent, healthy habit is more important than how significant your contribution is each month. Starting with a small, reasonable goal, like $1000, can help set yourself up for success.

Automate Your Savings

Make saving easy on yourself by automating your contributions. This way, you don’t have to track when or how much you put into your account. It happens regularly, without your supervision.

Set up Direct Deposit from Your Paycheck

If you work a traditional job with a weekly or bi-weekly paycheck, you can save time by setting up a direct deposit straight to your emergency fund. You can choose a percentage of your paycheck to set aside or a specific dollar amount.

Set up an Automatic Transfer from Your Checking Account

If your income comes inconsistently, consider creating your own “direct deposit” by setting up a monthly automatic transfer from your checking account to your emergency fund.

Use Your Gig Money

If you partake in the gig economy or hold a job where you make tips, consider using your additional income to seed your emergency fund. Every little bit counts.

Pick Accounts With Higher Dividends

Now that you have a plan for building an emergency fund, you’ll need to find a safe place to keep it. While a standard savings account is always a good option, other account options can help your emergency fund grow on its own.

High-Yield Savings Account

A high-yield savings account, such as Kasasa Saver, may offer over 10 times the return interest of a standard savings account (for example, you may get 0.25% back on your traditional savings account versus 5% on a high-yield savings account). Accounts such as Kasasa Saver also help you build savings automatically by transferring the rewards from your checking account into your Saver account.

Certificate Account

A certificate account, or a CD, is another way to grow a minimum balance. Unlike high-yield savings accounts, whose interest levels may fluctuate with the market, a CD offers a fixed amount for a fixed amount of time.

Take Advantage of Financial Windfalls

An excellent emergency fund tip is to stash away any financial windfalls you may come into, such as a tax refund, an inheritance, or a profit from selling stocks. A windfall can kickstart your emergency fund or help it grow, ensuring you have something stashed away for your future self.

Setting up an emergency fund doesn’t have to be difficult, and it doesn’t have to happen overnight. With a few simple steps, you can save enough to handle financial hardship when it comes your way.

Want a hand calculating your optimal emergency fund? Plugging these numbers into Trailhead CU’s online financial calculator can help you determine an exact number.