Cherie Knight, MA, ChFC
HR Projects Specialist
Emergencies are bound to happen to most of us. A car repair, illness, job change, or loss of a loved one can impact our ability to pay for regular bills and expenses.
An emergency savings account, maintained separately from your other checking and savings accounts and used only for emergencies, is a helpful way to reduce stress, avoid taking on more debt, and be better prepared for the unexpected.
Experts recommend having three to six months of take home pay available for emergencies, or nine-to-twelve months if you are the only income earner, are self-employed, or your income varies a lot.
Most of us need to build these funds slowly by setting aside a small amount each month until we’ve reached the target.
Open an interest-earning savings account that can be accessed without early withdrawal penalties or the risk of losing money. A CD, IRA, stock, bond, or mutual fund is not a good choice for emergency funds.
When you need to use this money, it’s important to start rebuilding to your goal amount immediately to be prepared when the next emergency happens. See best high yield savings accounts for top interest rates.
Start by calculating the total amount you want to save, then decide how much each month to put away toward this goal. You may be able to send money directly from your paycheck or your checking account to your emergency account automatically. Next, create or review your budget to see where spending can be reduced to carve out more savings. Bankrate’s Home Budget Calculator or a budgeting app can help.
Savings-focused apps like Acorns or Qapital can round up your purchases to the nearest dollar and send the change to your emergency account, and save extra change in a jar to be deposited when it gets full.
Putting your tax refund into your emergency account or reducing your refund and saving the difference is another great strategy. A second job, side hustle, or small business are additional ways to generate more cash for this purpose. Evaluate where you want to direct additional savings when you reach your emergency goal.
Saving for other expenses and short-term goals like car maintenance, clothing, and vacations is a good next step after your emergency fund is built. Start another savings account, or some banks allow sub-accounts to help you set aside money for different purposes.
You and your loved ones can take advantage of complimentary financial planning and advice from UNM’s financial services partners for help with setting goals, taking action, and making decisions that will improve your overall financial security.