Emergency Saving Fund

A Money 101 Guide on Budgeting and Setting Aside Money for Emergencies that Pop Up in Life

An emergency fund is a safety net that can help you cover unexpected expenses without breaking your budget or taking on debt. Emergency savings are meant to be kept separate from your other long-term savings goals and only used in case of an emergency.

Consider these tips to help you build your emergency savings fund.

Budgeting for an Emergency Fund

Setting aside cash for unexpected events is essential for long-term stability and can also give you peace of mind.  The rule of thumb is to save at least three months of living expenses in an emergency savings fund—better if you can save six months. The amount of emergency cash you should budget for depends on your lifestyle, committed expenses, household size, and income.

How much emergency cash do I need?

Here’s a simple way to determine how much emergency money you should put aside.

Step 1: Figure out the total necessary expenses you pay each month

Add all your expenses, including your rent or mortgage payment, utilities, car payments, gas, groceries, phone bill, and any other necessary monthly payments.

For this example, we will assume $2,000 a month of expenses.

Step 2: Pick the number of months you would like this emergency fund to cover

While saving for six months of emergency funding is best, we’ll use three months for this exercise.

Step 3: Choose how long it will take you to fund an emergency savings account

For this example, we want to reach our emergency money goal in three years.

Step 4: Do the math

  • Multiply your monthly expenses by the number of months the emergency fund will cover.

$2,000 * 3 = $6,000 emergency cash needed

  • Multiply the number of years you’ll save to reach your emergency savings goal by 12, to figure out the number of months you’ll need to fund the emergency account.

3 * 12 = 36 months to fund the savings goal

  • Divide the emergency savings goal by the number of months needed to fund your savings goals to determine your monthly contribution.

$6,000 / 36 = $167 monthly contribution  

In this example, you need to save $167 monthly for three years to have $6,000 in emergency savings. It’s wise to save the money in a separate account to avoid the temptation of dipping into it.

Here are a few safe options for storing emergency money.

  • Money Market Account: A money market account offers steady savings returns and easy access to your money. You can earn interest based on national market rates, compounded and credited monthly. Check out the features of the Peoples Advantage Money Market account.

Remember that these different savings options should be reserved for emergencies. A fully funded emergency savings account allows you to deal with problems level-headedly and helps you avoid high-interest loans (like payday loans) or racking up credit card debt. This approach will financially and emotionally enhance your lifestyle, giving you peace of mind when you need it most.

Christy SeidelChristy Seidel
Personal Banker
Christy serves Peoples State Bank customers in our Rhinelander location. As a personal banker, Christy can assist you with your banking needs, from opening a checking or savings account, loan applications, and questions you might have about our banking products.

715.420.2113 | christy.seidel@bankpeoples.com