Americans’ personal saving rate has never been higher, reaching a record 32.2% in April 2021. Historically, the saving rate tends to rise during times of economic uncertainty, such as the Covid-19 pandemic. However, we also tend to save less as the economy rebounds and a sense of optimism returns. The key to building your emergency savings is to stick with it even when times are good. In this article, we’ll cover commonsense tips for building your emergency savings so you’ll be prepared for a sudden job loss or other crisis.
How much do I need to save for an emergency?
Your emergency fund should serve two purposes. For one thing, it’s there to cover one-time unexpected expenses such as a major car repair or a last-minute flight to visit a dying relative. But primarily your emergency fund should see you through a temporary loss of income, either through a job loss or reduction in the amount of work or business you’re doing.
The exact amount of money you should have saved will depend on your specific situation. For example, a teacher may have more job stability than someone working in sales. Experts recommend at least three-to-six months of living expenses and possibly up to a year. This may seem unattainable, but growing your savings over time will make it easier to reach your goals. Start small—with a goal of $1,000, for example—and work your way up from there. Even with three months of living expenses saved, you’ll be more prepared to handle any emergency that may arise.
Make regular deposits
Commit to saving the same amount from every paycheck. Consistency is more important than the actual amount. Put your savings on autopilot by setting up a recurring transfer from your checking to your savings account on payday. It’s best to use a separate savings account that’s only for your emergency fund. Once you have a savings goal, you can work backward from that amount to determine how much you might need to pull out of each paycheck to put into your account. You may also want to start with a few hundred dollars just to help your account accrue interest faster.
Let your savings grow
Interest is the magic ingredient that helps your savings grow faster. For even more of a boost, check out our Kasasa Saver account. The high interest and ATM fee refunds you earn from your free Kasasa Checking are automatically transferred into Kasasa Saver each month. Even better, Kasasa Saver earns interest. A Certificate of Deposit (CD) is another good option for earning a higher interest rate in exchange for a commitment to a certain term length. Just keep in mind that you can’t access funds in your CD during the term period without paying an early withdrawal fee. So, you may want to always hold a certain amount in a regular saving account for liquidity.
Do you have a high-deductible health insurance plan? If so, you can use your Health Savings Account (HSA) to save specifically for medical emergencies. Your HSA account from SENB Bank will earn interest on all balances.
Only use your emergency savings in times of great need
Decide in advance what your emergency savings can be used for and stick to those rules. Generally, you should not use it for non-urgent expenses or purchases. It should also not become an “overdraft protection account” that makes up for overspending in your regular budget. Preserve your emergency savings so it’s there when you really need it, such as for:
- Medical emergencies
- Financial hardships such as unemployment
- Auto issues that could impact your employment
- Housing payments when you are out of work
Budget and cut back on unnecessary expenses
One great way to avoid overspending is to create a realistic budget (and then stick to it). The process of budgeting will also help you understand your current spending habits and where your money is going. Once you’ve identified your spending categories, try to cut back where possible in the non-essential categories like dining out or entertainment. You can then reallocate that amount to your emergency savings fund.
Partner with a local community bank
SENB Bank has proudly served the Quad Cities and neighboring communities since 1961. In 2019, the bank expanded into the Stateline (Roscoe/Beloit) region of Illinois and Wisconsin, with six banking centers serving Illinois, Iowa, and Wisconsin. We offer a comprehensive portfolio of products and services to help you build your emergency savings and reach other financial goals. Contact us today to get started on your savings journey!