Maximizing Your Savings: The Importance of Building an Emergency Fund

Introduction

The world is unpredictable and it is always ready to throw a surprise at you in the form of a medical bill, car breakdown or job loss. Although it is difficult to know when such circumstances will occur, you can be financially ready for them through saving for an emergency fund. An emergency fund thus helps you to have the cash to meet an emergency without having to borrow either from a credit card or from a moneylender. At ASB, we believe in saving and have developed different savings products to ensure that you have a strong emergency saving nest. Let’s take a closer look at why you need an emergency fund, how much money should be in it at any given time, and how to start accumulating it.

1. Why You Need an Emergency Fund

An emergency fund is a special account that is created to cater for any other expenses which are unexpected like hospital bills, repair costs, or unemployment. If you do not have one, you may be left with no option than to borrow from the credit card companies or take loans with very high interest rates which can lead to more accumulation of debts.

Key Reasons to Build an Emergency Fund:

• Financial Security: 

An emergency fund gives one confidence that in case of any emergency, one is financially ready to face it.

• Avoid Debt: 

That way, through the use of emergency funds, you can be able to avoid incurring high interest expenses which can worsen your financial situation.

• Protect Long-Term Goals: 

If you don’t have an emergency fund, you will have to borrow from your retirement or any other long-term investment, which is not good.

2. How Much Should You Save?

The amount that one should save in an emergency fund varies with the number of times one needs to cover an emergency and the number of months of income one is willing to set aside. However, it is advised that one should save at least three to six months’ worth of living expenses.

Determining Your Emergency Fund Goal:

• Calculate Your Monthly Expenses: 

Begin with the basic necessities that you spend every month such as shelter, electricity, water, food, transport, insurance and the bare minimum on credit repayments. This will give you a feel of how much you should be saving each month.

• Consider Your Job Stability: 

If you have a stable job with a steady income, three months of expenses may be sufficient. However, if your income is variable or you work in an industry prone to layoffs, you may want to aim for six months or more.

• Factor in Personal Circumstances: 

Consider any unique circumstances that could affect your financial needs, such as dependents, medical conditions, or upcoming life changes.

3. Strategies for Building Your Emergency Fund

Building an emergency fund may seem daunting, especially if you’re starting from scratch. However, with a strategic approach and commitment, you can gradually accumulate the savings you need to feel financially secure.

Effective Strategies to Build Your Emergency Fund:

• Set Up Automatic Transfers: 

Automating your savings is one of the easiest ways to build your emergency fund. Set up automatic transfers from your checking account to your savings account each payday. This ensures you consistently contribute to your fund without having to think about it.

• Cut Unnecessary Expenses: 

Review your monthly budget and identify areas where you can cut back. Whether it’s dining out less often or canceling subscription services, reallocating these funds to your emergency savings can accelerate your progress.

• Use Windfalls Wisely: 

If you receive a bonus, tax refund, or other unexpected income, consider putting a portion of it into your emergency fund. This can give your savings a significant boost.

• Open a High-Yield Savings Account: 

Consider placing your emergency fund in a high-yield savings account, where it can earn interest over time. Atlantic Stewardship Bank offers competitive savings accounts that can help your emergency fund grow faster while keeping your money accessible.

4. Where to Keep Your Emergency Fund

When choosing where to store your emergency fund, accessibility and safety should be your top priorities. You want your money to be easily accessible in an emergency, but also protected from unnecessary risk.

Best Places to Store Your Emergency Fund:

• High-Yield Savings Account: 

A high-yield savings account offers the safety of a traditional savings account with the added benefit of earning interest. These accounts are FDIC-insured, meaning your money is protected up to the legal limit, and your funds are easily accessible when needed.

• Money Market Account: 

Money market accounts also pay higher interest rates than a normal savings account but with similar flexibility on cash withdrawal. They may be associated with the check writing or debit card, and therefore one can easily access the money in case of an emergency.

• Certificate of Deposit (CD) Ladder: 

If you do not mind having a part of your emergency fund locked up for a while, then you can make a CD ladder. This means placing your money in several CDs but with varying terms of the investment. CDs pay more interest than savings accounts, but they are not very liquid; therefore, it is advisable to use it as part of your emergency fund.

Savings products that are available at Atlantic Stewardship Bank include high yield savings accounts and money market accounts to assist in the accumulation and preservation of your emergency funds.

5. When to Use Your Emergency Fund

It is important to learn when to use this money and when not to use it so that the money can be useful in the times of real emergencies. However, it is very easy to spend the fund in areas that are not really necessary, but it should be used only in cases of real emergencies.

Situations Where Using Your Emergency Fund is Appropriate:

• Job Loss: 

In case you lose your source of income, then an emergency fund will help you cater for most of your expenses until you find another job.

• Medical Emergencies: 

Expenses that you have not budgeted for, such as a bill from the hospital not paid by insurance is a good reason to use your emergency fund.

• Home or Car Repairs: 

If you need to fix a leak in your home or replace a broken part in your car which is crucial in your everyday life then you can use your emergency funds.

• Unexpected Travel: 

For example, if there is an emergency in your family such as a funeral, then an emergency fund can cater for the fare.

Bottom Line

An emergency fund is one of the most important aspects of a person’s financial management plan. This means that when an emergency arises you will not be forced to borrow money which puts you in debt, stress, and hardship. Atlantic Stewardship Bank is ready to assist you to achieve your savings target and offer you services and products that will suit you. If you are just beginning the process of establishing your emergency fund, or if you want to take your emergency fund to the next level, ASB is here for you.

Ready to start building your emergency fund? Visit Atlantic Stewardship Bank’s website or speak with a financial advisor to explore our savings options and find the right solution for your financial needs.