Emergency savings is important in case the unexpected happens. Improve your financial security and peace of mind with an Emergency Savings Account
Financial security is one of the most important goals for Americans, but many aren’t there yet. This is especially true after COVID-19 hit, which hurt many Americans' household income. Almost half of people in the U.S. say their financial security is worse since the pandemic began.
One way to get on track for a better financial future is to build your emergency savings now. This should be a separate account from your checking account that you’re not allowed to touch unless you’re dealing with an emergency. It’s ideal to pick an account that builds interest on your savings, however, the number one priority is that you have immediate access to your fund in the case of an emergency.
So, how much should you actually have in emergency savings? Why do you need them to begin with? Here’s what you need to know.
Why you need emergency savings
Having emergency savings ensures that you’ll be able to cover your bills if the worst happens. You never want to be left without savings if you hurt yourself and can’t work or have to pay for unexpected hospital bills for a child or family member. The pandemic has shown just how quickly things can change, and there are always economic ups and downs.
And, it’s not even always about the worst happening. All kinds of unexpected things happen in daily life that require sudden payment, such as your car window getting broken or your fridge breaking down. Household items breaking and accidents happening is fairly common. As they say, change is the only constant.
Saving in a separate account that is specifically for emergencies and unexpected costs ensures that you have funds set aside precisely for this purpose. Ideally, you will not touch these savings unless you are having trouble covering your normal expenses because of an unexpected issue. But, remember, that shouldn’t be the norm. If it is, you should continue to prioritize your spending habits.
Here are some examples of when having an emergency fund can be life-changing:
You just never know what’s going to come your way. No matter what happens, a solid ESA that you can build over time will give you peace of mind.
Calculating how much emergency savings you need
You may have heard lots of advice to save anywhere from three to six months in emergency savings. Doing so can feel daunting and it may take time, but you’ll have a nice cushion should something go wrong. But is just a few months’ worth of costs enough? What if the unexpected expense is bigger than you can handle?
Let’s set the record straight: You should be shooting for 8 to 12 months of living expenses. Why? Because not only can this money cover your everyday costs when the worst happens, it also helps you avoid building up credit card debt. If you only have three months saved up, you may run out of your emergency fund very quickly, causing you to go into debt for future unexpected expenses.
You never know what will happen in the future. You may have to face high medical bills that you didn’t plan for. Or, an issue with your home could arise that is time-sensitive. If you lose your job and have to deal with one of these problems, three months of savings just aren’t going to cut it, at least not comfortably.
In particular, you should aim for more savings if you are the sole earner for your family or you’re a freelancer whose income changes each month. In these cases, it could be a lot worse if your income stops suddenly, especially if you have to support other people.
When determining how much money you want to build in emergency savings, multiply your goal (between 8 and 12 months) by your monthly living expenses. Make sure you add up the following:
The sum of all of these living expenses should be the monthly minimum that you need to have saved. The average monthly expenses for Americans can vary from $3,000 to $7,000 depending on family size. But, say you have around $5,000 of expenses each month. Your goal should then be to have $40,000 to $60,000 available to you in case of an emergency.
How an employer-sponsored ESA can help
Sometimes, the easiest way to start saving is by joining an employer-sponsored ESA, where your company can actually match contributions to help you build your fund up quicker. Your withdrawals can be automatically taken out of your paycheck so you don’t even think about it, and you’ll reach your goal in no time.
SecureSave offers a free ESA for employees, and if your employer doesn’t offer it yet, you can sign up for the waitlist to help encourage them to offer SecureSave at your workplace. You will always own the funds you save with us, even if you leave your company, and you can access your money at any time, for any reason. Employees can sign up in 30 seconds and start saving.
SecureSave is here to help you deal with the unexpected. Learn more by visiting www.securesave.com today.