How an Emergency Fund Helps You Become Financially Resilient

An emergency fund helps you deal with life’s uncertainties. It not only provides the funds you need when you need them most, it provides peace of mind that you’re prepared when that unexpected event does happen.

Expert Recommendation
Emergency funds are recommended by financial advisors and experts as a way to cover financial losses in the event of an emergency like job loss, health issue, or natural disaster. But how much should you be saving?

• Save How Much? Many experts suggest that your emergency savings fund should be stocked with enough money to cover six months of household expenses or more if you’re able. Here are a few steps to get that fund going.

Find a Good Account
Since you’ll be saving for emergencies, make sure your money is in a safe place to grow as fast as possible.

• Search for a high-yield savings account with a high interest rate at a bank, credit union, or online financial institution.
• Set up a separate savings account that is only for emergencies.
• Some financial experts suggest opening an account at a separate financial institution from your primary accounts. This removes the temptation, or at least makes it more difficult, to dip into savings impulsively.

Once you’ve set up this account, start saving as much as your budget will allow.

Consider Your Goal
Saving 6 months’ expenses may seem daunting, but it’s okay to start small and just do what you can. In order to save 6 months’ worth of expenses, you need to know what your monthly expenses are.
For that, here are a few simple steps to follow when looking at your finances:

• Write down all your major expenses, which include the following:
  o Housing (Mortgage, rent, taxes)
  o Food (Groceries, food delivery, eating out)
  o Utilities (Electric, gas, water, internet)
  o Transportation (Car, gas, maintenance, ride share, public transit, etc.)
  o Phone (Cell phone, landline)
  o Insurance (Home, auto, health, life)
  o Household Items (Toiletries, cleaning supplies, toilet paper, etc.)
  o Clothing
  o Savings (Retirement accounts, CDs, IRAs)
  o Entertainment
  o Travel
  o Other discretionary spending
• Add up all your monthly expenses. That’s your monthly expense number. Multiply that by six, and that’s your savings goal amount. Example: $5,500 monthly expenses x 6 months = $33,000 in emergency savings.

If you can save more, do it. It never hurts to save more than necessary.

Split it Up
One of the simplest ways to save is to make it automatic. Splitting up your paycheck and directing a portion into your “separate savings account” is one way to ensure you actually save every paycheck.

• Ask your employer if you can split up your paycheck.
• If you are able, ensure that some of your paycheck is deposited directly into your savings account each pay period.
• As you get raises or bonuses, tick up your savings a little bit each time.

Start Small
Don’t be intimidated by trying to save for six months of expenses. The most important thing is to save as much as you can. Even a small amount can help you out.

Lump it in
If you get a windfall of cash from a tax refund or a lump sum bonus at work, send it directly to your emergency fund, if your budget allows.

Do One Thing: Find a savings account with a high interest rate so your emergency fund grows as fast as possible. Fortera has several saving account types to choose from. Visit our Savings Accounts page to find the account that will work best for you.

Original article by Chris O'Shea and adapted in partnership with SavvyMoney.