Build Your Emergency Fund Email
This month's featured E-Wealth Coach is Elaine Courtney. Elaine has worked as a financial educator with the University Florida Extension Service for 25 years and specializes in helping families develop spending and savings plans.
Dear Saver,
Let’s talk about emergency funds. You may think you can’t afford to have an emergency fund, but you can’t afford to be without one. Why? Stuff happens – and most of the time, it costs money.
By setting up an emergency cash fund, you protect yourself from the unknowns. Think of this fund as your “safety net” just in case something happens, like a job loss, car break down, or a broken arm. Without this reserve, you may be tempted, or forced, to go into debt—and that may take you years to pay off and cost you much more in the long run. Having an emergency fund gives you more options.
How much savings is enough for an emergency fund? Most financial experts recommend having three to six months living expenses set aside. However, any amount is helpful. A recent Consumer Federation of America survey found the typical annual emergency costs among low-to moderate income women was $400-$2000. You just need to have some emergency funds on hand! The amount will depend on your personal situation like your job security, income level, and needs.
Some of this money should be kept in liquid accounts, such as a savings account, money market account or even short term Certificates of Deposit. Additional funds needed beyond this, could be tapped from a low-interest source such as a home equity loan. Use this worksheet to calculate how much that might be. For savings tips -- to make sure you reach your goal -- click here.
Financial institutions offer a variety of savings accounts that work well for emergency savings. How do you get started? One of the easiest ways is to make it automatic. Check with your employer and bank or credit union about direct deposits or transfers into savings. You can also try saving a small amount each week and put it in your emergency savings account.
Your emergency account should be easily accessible, just not too accessible! One way to reduce accessibility is to establish a savings account that does not have an ATM/Debit card nor is linked to your checking account. You could also set up a savings account at a different financial institution (from your other accounts).
To make sure that you’re growing your emergency savings account, I recommend developing a “savings habit”, which is one of the most powerful ways to improve your financial security and accumulate wealth over time. While many media reports and advertisements by financial firms provide a great deal of advice about how to become financially secure, the simplest and possibly most effective strategy is to “pay yourself first” and save a portion of your income on a regular basis.
It is more important today than ever that Americans adopt this simple habit. The U.S. savings rate is the lowest it has been since the Great Depression. In addition, household debt levels and foreclosure and bankruptcy filing rates are high and housing values have declined in many area of the country. All of these factors support the need for savings. In other words, “saving for a rainy day” means starting now.
In addition to creating emergency funds, you may want to save for “big ticket” items, retirement, investment, or even just for the security and peace of mind that savings brings.
The most important thing is to get started now. If you are already saving, try increasing the amount that you save. The results, over time, will be amazing. For additional information about the benefits of saving, visit the America Saves Web site at www.AmericaSaves.org. If you have financial questions, you can also visit eXtension.org to "ask an expert."
Sincerely,
Elaine Courtney
The University of Florida Cooperative Extension Service, USDA-CREES
Thanks to Dr. Barbara O’Neill of Rutgers Cooperative Extension and Dr. Michael S. Gutter of University of Florida Extension for their advice and input.
