Want to achieve more financial security and prepare for any surprises that life throws your way? If so, you need to build an emergency fund.
A healthy emergency fund can be your lifeline when encountering unexpected expenses, such as vehicle repairs or medical costs. The question is, how do you build an emergency fund?
If you want to find out, join us as we take a deep dive into emergency funds, including what they are, why you need one, and most importantly, how you can start saving.
What Is an Emergency Fund?
An emergency fund is an account (usually a savings account) that is set aside for unexpected expenses like:
- Home repairs
- Major car repairs
- Job loss
- Medical expenses
Typically, you should save enough cash to cover three to six months of your expenses, including bills, groceries, gas, etc.
Even if you don’t have any money stashed for a rainy day, you can start saving by setting aside small amounts and being consistent. With that in mind, let’s explore some tips for building (or rebuilding) your emergency fund.
How to Build Your Emergency Fund
If you are ready to build your emergency fund, follow these steps:
Create an Account
First, create a designated account for your emergency fund. If you already have a savings account that isn’t being used for any specific purpose, that will work just fine.
Set Small, Achievable Goals
Next, set small savings goals. Instead of striving to save three to six months of expenses, break your savings journey into achievable increments. For instance, commit to saving $100 per paycheck until you reach $1,000 and then set your sights on your next goal.
Consistency is key to creating a healthy savings fund. Unless a true emergency strikes, don’t deviate from your saving strategy. If you commit to saving $100 each paycheck, don’t skip a week simply because your favorite brand is running a sale.
Automate Your Savings
If you want to make saving even easier, consider automating your savings. Most employers allow you to have your paychecks deposited into multiple accounts. Consider rerouting a small portion of each check to the emergency fund account.
Avoid Borrowing (If Possible)
Don’t replace one bad spending habit with another — avoid signing up for new credit cards or personal loans unless absolutely necessary.
If you encounter an unexpected but necessary expense and have enough funds to cover it, do so. While it may be discouraging to deplete your emergency fund, that is what it is for. Using those funds is better than taking on more debt.
Put Your Money to Work
After reaching your primary emergency fund goal, put some of your money to work to generate even more cash. For instance, pull a few thousand dollars from your emergency fund and invest in a Certificate of Deposit (CD). A CD is a long-term savings account that accrues interest faster than a standard account.
Benefits of Having an Emergency Fund
An emergency fund provides a wide range of benefits, including:
- Peace of mind
- Better financial security
- An ability to take on less debt
If you encounter a significant unexpected expense and have a healthy emergency fund, you won’t have to take out high-interest loans or put it on a credit card. Instead, you can cover the expense in cash and maintain your financial freedom.
Bank at CSB and Let Us Help You Boost Your Financial Security
Cleveland State Bank is committed to providing our customers with a better banking experience through personalized service designed to help you meet your current and future goals. We offer loans, lines of credit, checking and savings accounts, retirement planning services, Certificates of Deposit, and much more.
Want to learn more about our Certificate of Deposit (FDIC-insured), individual retirement accounts (IRAs), and other savings products? If so, explore our current IRA and Certificate of Deposit rates or connect with a team member today.