Emergencies are often impossible to prepare for and can happen when you least expect them. Whether that emergency consists of a car accident, a flooded basement, or being laid off from your job, they are all out of your immediate control. All of these events can have substantial negative financial impacts, and that’s where an emergency savings fund comes into play.
Emergency savings funds can take many different forms and be financed in a variety of ways, but all serve the same purpose in acting as a buffer in times of crisis. They exist separately from any other savings accounts that you already likely have and are only used for unexpected events. It may be difficult to get started putting money into yet another account while immediate expenses such as your mortgage/rent, groceries, internet bill and car payments demand priority. But part of being an adult means preparing for what comes your way, good or bad, and with preparation comes peace of mind. Read these National Bank tips and tricks for when, where, why, and how to open a secure emergency savings fund.
When Should I Start Saving?
Getting right into the numbers may seem daunting, but a few simple calculations will do the trick. The general standard is to have three to six months’ worth of all living expenses available in your emergency savings fund. This will be different for each person depending on income and variable and fixed mandatory payments.
- First: Identify your fixed monthly expenses.
- Next: Determine how many months your emergency savings fund will cover.
- Then: Estimate how much time you would like to take to reach your savings fund goal.
- And finally: Determine a monthly payment that will help you reach your goal amount in the desired amount of time.
Where Should I Keep My Cash?
National Bank offers a selection of additional savings accounts separate from your regular savings accounts. These options can help build your savings and earn more interest the more money you put into your account. Storing emergency savings fund money in a different account can help you to refrain from dipping into it. Explore the choices available to you from National Bank:
- Money Market Account: This account functions as a mix between a checking and savings account combined. You receive a debit card for the account to withdraw money and can also write checks. Interest rates for this account also tend to be slightly higher than those of regular savings accounts.
- Certificates of Deposit: This is a great option for if you feel that you are tempted to dip into your savings fund and need a passive form of saving. For a determined amount of months, the money that you deposit into the account will accrue interest. The catch however is that you are unable to touch the money in that account without a financial penalty, until that pre-determined amount of time has come to an end. Interest rates are also higher than those of regular savings accounts.
These alternative savings account options will help ensure the maximum emergency savings possible and greatly benefit you in the long term. They will also help you to use the funds when absolutely necessary and steer you away from using these hard-earned savings for recreational purposes.
Why Use One of These Accounts?
It may be difficult to quantify the long-term benefits of emergency savings funds, but using calculators can provide a great overview and motivator for starting to save sooner rather than later. Seeing total savings can be a great incentive and provide reassurance in terms of visualizing where your emergency savings fund could be in the future. Use a Savings Calculator, or CD Calculator to help gain an understanding of total savings over time for each account. This is a helpful way to tangibly see the differences between each account, compare them, and decide which one is right for you.
How Else Can I Save?
If you’re having a hard time finding spare money to put aside with all of life’s expenses, it may be helpful to drop some expensive habits and/or pick up a few new habits. Check out options for you to get creative with your finances.
- Save automatically: Set aside a certain amount of every paycheck and use direct deposit to have your earnings go directly into your emergency savings fund account. You can check the status of your accounts easily with online banking or your mobile banking app.
- Cook your meals instead of ordering in: A quick and easy meal from DoorDash, fast food, or a restaurant may be tempting after a long day. But meal prepping for the week or cooking homemade meals can help you save, and your emergency savings fund will thank you later. And bonus, you may also be making a heathier choice too.
- Make coffee at home: Buying a coffee every day does seem like a small amount, but over time it can add up. Try brewing your coffee at home and take the money you were spending at Starbucks or your local coffee shop and put it aside!
- Sell clothing and items: You may have heard of Depop, Poshmark, or thredUP. You can sell clothes that have been sitting in your closet and clear out your space at the same time. eBay and Facebook Marketplace can be great for selling furniture, kitchenware, and any other items laying around. Put the proceeds from this into your savings account so you don’t touch it.
- Get a Cash Back Credit Card: These credit cards are a great incentive and give you a percentage back of the cash that you spend. This is the perfect option for spending and earning in tandem while also improving your credit score and you can add those cash back savings into your emergency savings fund.
Emergency savings funds are an important way to prepare in advance for the unexpected. They are a security net for the future and prevent incurring credit card debt and consequently bad credit. The strategies and accounts above will help you to get into the habit of saving, provide peace of mind and set you up for financial success. Contact us today or visit any of our convenient Virginia branches to get started with your emergency savings fund.