Whether you're just starting out in your career or you've been working for a while, it's essential to understand the importance of having a savings account set aside specifically for emergencies. An emergency savings account is a separate account where you can save money to use in case of unexpected expenses, like a car repair, medical emergency, or job loss.
In today's uncertain world, having an emergency savings account is more important than ever. It can provide you with a safety net to help you through tough times, giving you peace of mind and a sense of security. In this article, we'll delve into the importance of having an emergency savings account, the benefits it provides, and some tips to help you get started.
An emergency savings account is a must-have for anyone looking to take control of their finances and be prepared for unexpected events. The truth is, emergencies can happen anytime, when you least expect them. Emergencies or unexpected expenses can come in many forms, including:
The unexpected costs that accompany such emergencies can put a major strain on your finances and leave you scrambling to find the money to cover them. With an emergency savings account, you have a safety net in place to cover these expenses and help protect your financial wellness.
Putting an emergency savings account in place helps give you peace of mind, knowing your financial security and that of your family are safeguarded. When you know that you have money set aside specifically for emergencies, it can literally help you sleep better at night. And when an emergency does arise, you’ll be able to focus on taking care of the situation at hand and finding the best solution instead of worrying about how you’ll pay for unexpected expenses.
No one wants to go into debt, and having an emergency savings account is one step you can take to help avoid this scenario. If you don’t have an emergency fund in place, you may be tempted to use a credit card or take out a loan to cover unexpected expenses. This can lead to a cycle of debt and interest payments, making it harder to get back on track financially.
The interest and fees charged on loans and credit cards can quickly add up, making it difficult to pay off the debt and leaving you with a lingering financial burden. This can also impact your credit score, which can make it harder to get approved for loans or credit in the future—as well as impacting your ability to rent a property, buy a car, or even sign up for a cellphone plan.
In addition, using debt to pay for unexpected expenses can also increase your monthly expenses. Instead of just paying for the unexpected expense, chances are you’ll also be paying high interest and fees, which can add up over time. This can put a strain on your finances and make it harder to save for future emergencies or reach your other financial goals.
Having an emergency savings account can help you avoid these negative consequences. With an emergency fund in place, you can use the money you’ve saved to pay for unexpected expenses without having to rely on debt. This can help keep your finances in good shape and avoid the stress and anxiety that come with putting yourself into debt during financial emergencies.
Flexibility may not be the first thing that comes to mind when you think about emergency savings, but it’s a pretty nice benefit of having a financial safety net. With a comfortable amount of money saved for unexpected expenses, you can feel more comfortable spending a little extra money from your regular income on occasion. Want to treat family to a nice dinner when they come into town? No sweat. Want to say yes to a weekend away with friends? You can rest easy knowing your emergency savings safety net will stay intact.
But beyond the special occasions, the financial flexibility that ESAs offer can enable you to make important financial decisions that will positively impact your future. When you know you have a separate emergency savings to fall back on, it’s easier to comfortably make major financial decisions like purchasing property, investing in a business opportunity, or enrolling your child in a four-year university. You can put your regular savings to good use for the future without worrying about digging yourself into a hole.
Moreover, having financial flexibility in times of crisis can be extremely beneficial. It can help you avoid making difficult choices between paying for necessities or covering an unexpected expense. You will have the ability to cover emergencies without having to sacrifice other important expenses like housing, food, and transportation.
The benefits of emergency savings are clear, so how do you get started? We’ve outlined three steps for putting an emergency savings account to work for you.
Starting with a goal in mind gives you a clear target to work towards, motivates you to keep going, and enables you to develop a realistic plan to meet that goal. We recommend that you start by determining how much money you need to cover your essential expenses in the event of an emergency. Add up all of your regular monthly expenses to get a ballpark idea of your living expenses each month, including shelter (rent or mortgage), food, health costs (like insurance, medications), and transportation.
Based on your current income and expenses, set a realistic target for your emergency savings account. We recommend saving at least six months' worth of living expenses, although eight months is even better. Once you’ve set your target savings amount, turn your goal into a measurable target by setting a deadline for when you want to reach that amount.
For example, if your monthly expenses are $2,800, your target amount might be $18,000. It could take some time to save up that much money, so be realistic with your savings timeline.
Now that you know what you want to save and when you want to save it, it’s time to start building your savings.
Saving enough to cover 6-8 months of living expenses doesn’t happen overnight. Be patient and let your funds grow with time. Follow these tips to help make your emergency savings efforts as fruitful as possible:
One of the easiest ways to start building your emergency savings is through an employer-sponsored ESA. If your company offers this benefit, they can even match your own contributions to help you grow your savings quicker. Plus, you can set up withdrawals to be automatically taken out of your paycheck so you don’t have to worry about doing it manually each month.
SecureSave offers an ESA for employees that’s simple to use and set up. If your company doesn’t offer it yet, join the waitlist to show your interest in having SecureSave at your workplace. With us, you’ll always own the funds you save even if you leave your company, and you can access your money at any time, for any reason. You can sign up and start saving in just 30 seconds.
Whatever ESA solution you choose, having some type of emergency savings account in place is a smart financial move that everyone should consider. It provides a safety net to help you through tough times, helping you avoid debt and offering financial flexibility and peace of mind. If you don’t already have an emergency savings account, now is the time to start one. Start small, set aside a little money each month, and soon you’ll have a solid emergency fund in place.