Tips for establishing an emergency savings fund

MUW Team

// July 6, 2023

Financial education, Tips for tracking and saving money

Introduction

When you’re saving for a rainy day, it’s tempting to think that the more money you can put away, the better. But that’s not always true: What matters most is how much time it takes your account to reach its full balance. The longer it takes your emergency fund to accumulate enough cash for an unanticipated expense—like a car repair or medical bill—the less prepared you’ll be when something goes wrong.

Start small.

Start small. Instead of trying to save a big chunk of money all at once, start with a smaller amount and build up from there. You may be more likely to save if you begin with a small savings goal in mind.
Focus on the short term. Your emergency fund should be enough to cover three to six months’ worth of expenses, but don’t worry about saving for retirement or other long-term goals yet–focus on getting an emergency fund established first!
A little bit goes a long way toward building an emergency fund; don’t underestimate the power of even small amounts saved regularly over time (and make sure these contributions are automatic). If possible, try contributing at least 1%–or even 2%–of each paycheck into your savings account until it reaches its target size; once that happens, keep putting away whatever amount works best for you to maintain its value over time.*

Create a separate account.

To make the most of your emergency fund, it’s important to separate it from other savings.

This way you can have an easy way to access money when an emergency arises. You’ll also be less tempted to dip into it for non-emergency expenses, which could weaken its effectiveness as a safety net.

If possible, open up a high-yield savings account at an online bank like Ally or Bank of America–the interest rates tend to be higher than those offered by brick-and-mortar institutions like Wells Fargo or Chase Bank (though these may vary by location). If opening up an entirely new account isn’t feasible right now due to time constraints or other factors, consider setting up a dedicated savings account within a larger institution where there are no monthly fees; this will allow you access without having too much hassle involved with moving money around later on down the road if necessary.”

Put the money in a high-yield savings account.

Choose a high-yield savings account.
Compare the interest rates of different banks and find the best one for you.
A high-yield savings account pays more than other accounts, such as regular savings accounts or money market accounts.

Put your emergency fund on auto-pilot.

When it comes to building an emergency fund, automatic transfers are the way to go. Auto-pregnant-transferring is a great way to make sure you don’t forget about your savings and end up spending more than you intended on other things.

The first step is setting up an automatic transfer from your checking account into your savings account every month–and if possible, set up recurring transfers so that the amount transfers automatically each month without any further thought from yourself (this requires two separate transactions). You can also set up recurring payments with different amounts depending on how much extra money has come into your checking account during the month–for example, if there’s $100 over what was planned for groceries this week because of a sale at Trader Joe’s or Costco Wholesale Club (or whatever grocery store), then use half of that money for next week’s grocery bill and put half into savings instead!

Make sure you have enough savings to cover three months of expenses.

The amount of money you should have saved in your emergency fund is three months’ worth of expenses. This is a good benchmark to aim for, but if you’re not there yet, don’t worry about it too much. The important thing is that you have some kind of savings and know how much money you would need to cover yourself for a few months if something went wrong (like losing your job).

If you don’t have enough savings built up yet, don’t worry–you can still start building up an emergency fund now! Just set aside what little extra cash comes in every month and put it into a separate account just for emergencies so that when the time comes, there will be no delay in getting back on track financially. A great way to do this is by setting up an automatic transfer from one bank account into another each payday (or whenever else) so that it doesn’t even feel like money being taken out at all.”

Automatically transfer these funds into your emergency fund at the beginning of each month or on your payday.

Automatically transfer these funds into your emergency fund at the beginning of each month or on your payday.
Set up a recurring payment and make sure you have enough money to cover three months of expenses in case of an emergency.
Transfer a percentage of each paycheck into the account (e.g., 10%).

It’s important to start saving for emergencies as soon as possible because it takes time for those funds to grow and reach a level that will help you weather financial storms when they occur!

It’s also important that you don’t save just enough money to cover three months of expenses, but rather, try and save at least six months

worth of living expenses. If your emergency fund isn’t large enough, you may not have enough cash flow when something unexpected happens–and then where will you be? You’ll probably end up using credit cards or taking out another loan with high-interest rates (which could land you in even more debt).

Conclusion

The best way to make sure you’re prepared for any emergency is to start saving as soon as possible. It may seem like an overwhelming task, but with the help of this guide and some persistence on your part, it can become a reality.