Emergency funds exist to help you cover large or unexpected expenses that come up in life. Think major car repairs, unforeseen health issues, or losing your job. If and when life hands you lemons, an emergency fund can help you get through.
Your first step will be to identify how much money you should keep in your fund. Start by calculating your monthly expenses. Total up the cost for things that you must pay each month and leave out expenses that are easy to cut or cancel without penalty — your Netflix subscription, for example.
Be thorough in your calculations. Consider the following important expenses:
- Insurance (home, health, car, etc)
- Debt Repayment
- Utilities (cell phone, internet, electricity, water, etc)
- Personal Expenses (haircuts, clothes, toiletries, etc)
Do you have your number? Great. The average emergency fund should cover six to nine months of living expenses, so go ahead and multiply your total by six. Relax. And keep reading.
Start making your plan. Set a target number that you want to save each month to help you reach your goal. This monthly contribution should feel possible. Building your emergency fund is non-negotiable.
Decide where you want to keep your emergency fund. It’s best practice to keep your emergency fund separate from your normal savings and checking accounts. With Peoples Bank, you have two options: a personal savings account or a money market account.
Personal Savings Account
You can open a Peoples Bank savings account with an initial deposit of $100. Interest is paid on your account balance quarterly.
Money Market Account
A second option is a Peoples Bank Money Market Account. This type of savings offers more interest on your balance but comes with a higher minimum balance requirement.
For best results, set up an auto-draft from your checking to your emergency fund each month or twice a month, depending on when you receive a paycheck.
Commit to cleaning up your checking account each month. This will help you better track your money and open up more opportunities to increase your emergency fund. After you pay your bills, add anything remaining to your fund. If there’s nothing left over, consider ways to trim your expenses.
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If the idea of establishing an emergency fund has you feeling overwhelmed, you may need to start a budget first. Use our monthly budgeting sheet to track your expenses and set goals for saving more. Download it for free today.