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Money 101 - Starting Your Emergency Savings Fund

A safety net for unexpected expenses


What do car accidents, house fires, and layoffs all have in common? They’re all unexpected, uncontrollable, and urgent life events that occur in our world every day. What you can control about these situations is the emergency money you save to prevent them from impacting your financial status.

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 from Peoples State Bank to help you build your emergency savings fund.

Budgeting for an Emergency Fund
According to The Federal Reserve, four out of 10 Americans can’t cover a $400 emergency expense. Setting aside cash for unexpected events is important 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 figure out how much emergency money you should put aside.

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

These expenses include everything from your rent or mortgage payment, utilities, car payments, gas, groceries, phone bill, and any other necessary monthly payments. For this example, we’re going to assume $2,000 a month of expenses.

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

While it’s best to save for six months of emergency funding, 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, let’s say that 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 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 every month for three years to have $6,000 in emergency savings. This doesn’t account for any interest accrued from your savings account.

Where to Stash Your Emergency Cash
Now that you know how much money you need to save to build up your emergency savings, you’ll need to decide where to save it. It’s smart to start a separate account for your emergency fund to avoid the temptation of dipping into it. Here are a few safe options for storing emergency money.
  • High-Yield Savings Account: This type of savings account will allow you to access your money easily in case of an emergency and offers better interest rates than a typical checking account. Check out the features of the Peoples Super Saver account.
  • Money Market Account: This type of savings account, also called an MMA, offers steady savings returns and easy access to your money. You can earn interest based on national market rates, which is compounded and credited monthly. Check out the features of the Peoples Advantage Money Market account.
  • Certificates of Deposit: Another option is to put some of your emergency savings into a certificate of deposit (CD) as a way to earn interest on the money you’ve already saved and can afford to put away for a while. You’ll get a guaranteed rate of return based on your initial deposit and term selected. You may also consider laddering CDs/certificates so they mature at different dates, giving you access to your money at different dates.
Remember that these separate savings options should be reserved for emergencies. If any of these emergency savings options end up being used for recreational purchases, such as vacations or new cars, you will no longer be protecting your finances for emergencies.

Emergency Savings Strategies

Depending on your situation, it may be difficult to set aside money into an emergency savings account. Here are a few strategies to help you save more for a rainy day.
  1. Make savings automatic: Use direct deposit to automatically set aside a portion of your paycheck into your savings account or money market account each month.
  2. Evaluate and reduce monthly expenses: Look at non-essential costs that can be substituted with less expensive alternatives or cut these out completely if possible. If you tend to buy coffee every morning, try making coffee at home or wait to drink the coffee at work. Take a look at subscriptions that may be non-essential or try cooking more at home and eating out less. Your emergency savings account will thank you later.
  3. Sell used items: If you haven’t used something for six months, why not consider selling it? There are free apps and websites that help you sell unwanted items for cash. You could also have an old-fashioned garage sale. Set aside the money you make into your emergency account.
  4. Get a side hustle: Do you have a talent that you could make money from, or do you have some extra time? Find ways to make more money by getting an odd job or side hustle.
  5. Re-calculate your budget each year: Expenses and circumstances are always changing, so make it an annual task to ensure you’re saving the right amount. Our Smart Budget tool can help you determine how long it will take to reach your savings goals as your budget changes.
A fully funded emergency savings account gives you the ability to deal with problems in a level-headed manner and helps you avoid high-interest loans (like payday loans) or racking up credit card debt. This approach will enhance your lifestyle both financially and emotionally, giving you peace of mind during the times you need it most. Contact a Peoples State Bank representative for advice on the best savings accounts for your emergency fund.

Peoples State Bank

Peoples State Bank is a community bank headquartered in Wausau, Wisconsin, serving north, central, and southeast Wisconsin from ten full-service banking locations in Marathon, Oneida, Vilas, Waukesha, and Milwaukee Counties, as well as a commercial loan production office in Stevens Point, WI.