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How to Build an Emergency Fund

When an emergency hits, a financial safety net has you covered

Financial emergencies happen. Whether it’s your job, car, house (or apartment), child or pet, something at some point will cost you above and beyond your normal expenses. Yet, Bankrate's June 2018 Financial Security Index survey revealed 34 percent of American households had a major unexpected expense in 2017, with only 39 percent able to cover $1,000 with savings.1

This aligns with the Federal Reserve report that notes, “44 percent respondents could not cover an unexpected $400 emergency expense or would rely on borrowing or selling something to do so."2

And the need for emergency savings isn’t limited to one group of people. It spans across income levels:

  • 27 percent of lowest income households have savings for at least three months of expenses.
  • About 25 percent of highest earning households either have no emergency savings or for less than three months' expenses.3

Start building your emergency fund right away

We recommend these four steps:

  1. Decide how much you’ll need. Financial advisors suggest an emergency savings fund that can cover at least three to six months' living expenses. But, keep in mind your type of employment. If you’re self-employed and your income fluctuates, or if you're retired and more of your money is invested in stocks and bonds, increasing the amount in your emergency fund may make sense
  2. Draw up a financial plan or budget. Strategize a way to set aside money for emergencies that keeps it separate from other savings, i.e., retirement or college funds. This will help you avoid the need to borrow money or tap into other funds that could have withdrawal fees or penalties. Keep it out of your immediate reach and spending temptations by not tying the funds to a debit card
  3. Choose the right bank and account type. Ensure steady growth for your savings with an account at an online-only bank. While separate from your everyday accounts, it’s easy to access your funds if you need them. Interest rates on high-yield savings or short-term CDs tend to be significantly higher than the national average. Plus, no or low account or maintenance fees, low minimum opening balance requirements and daily compounding can simplify and maximize your savings potential
  4. Set up automatic deposits. Move money from a checking account to your savings account without having to think twice. With automatic deposits, you pay yourself first and won’t have a chance to forget to make a deposit or use that money for other purchases.

Save for the unexpected and de-stress

With your emergency savings foundation built, your financial stress should start to melt away. Start with step 1 today and you’ll have fewer worries when life's unexpected challenges hit. 

From job loss to medical expenses, confront the unexpected by learning more about building your emergency savings.

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