What is an emergency savings fund?
An emergency fund is money you have set aside specifically for instances when an unexpected expense occurs. You can set up a special savings account (which we recommend) or simply add a buffer to your existing savings. It’s referred to by many as a “rainy day fund”. If you’re looking to set up a special savings account, visit one of our account experts at any HFS FCU branch location island-wide for assistance.
Your emergency fund can be used for a variety of reasons – from a flat tire, to a broken appliance, medical expenses, or even loss of household income. As stated, it comes in handy for emergencies in which you may not have otherwise had the funds to cover the expense. Without an emergency fund, many people turn to credit cards or loans to cover these expenses. Statistically speaking, more than half of Americans do not have the funds to cover a $1,000 emergency.
Why do I need it?
Imagine the stress that comes with a bill you know you can’t afford. Having an emergency fund set aside provides peace of mind that when life happens, which it will, you’ll be prepared.
How much should I save?
Ideally, the right amount of money to save in your emergency fund should equal 3-6 months of household expenses. These expenses include mortgage/rent, utilities, loan payments, etc. However, for many this may seem like a lofty goal to reach at first. Start off with a smaller amount, about $1,000, and continue adding onto it as you can. The more money you can save, the more prepared you are.
Building Your Emergency Fund
Set a Goal – how much do you want to save?
Create a budget (or revise your current one) – HFS offers this helpful budget template to get you started.
Review your monthly budget and create a “line item” for your savings account. Adopt the mindset of paying yourself first, so each time you get paid, set aside money for your Emergency Fund. Whatever amount you can afford.
if your current budget doesn’t have room for savings, re-evaluate and see if you can cut costs anywhere to free up funds.
Have a savings account specifically for your Emergency Fund, where you put the funds you save each month.
Don’t take money out of the account, except in case of emergency.
Set a Goal
Before you can start saving, you need to determine what your goal is. How much do you want to have in your emergency fund? If you don’t have any savings right now, start small with a goal of $1,000.
If you are a homeowner, emergency expenses can have a higher price tag. Some examples include appliance breakdowns, a new roof, new gutters, etc. In this case, it’s wise to have a larger emergency fund.
As mentioned earlier, the ideal emergency fund would cover 3-6 months of household expenses. If this is your goal, great! Figure out what that amount is, decide how quickly you want to save this amount, and use that information to compute how much to set aside each month.
Create a Budget
If you don’t already have a budget, creating one is the next step in building your emergency fund. There are many different ways to budget (50/30/20 budget, zero budget, etc.), but it’s important to find a system that works for you. For a sample budget sheet, take a look at this template we’ve made available on our website.
The most important first step in creating your budget is knowing your monthly income, as well as your monthly expenses. If your expenses outweigh your income, find ways to cut down on your expenses so that you have extra room in the budget to start saving. This may come down to evaluating your priorities, needs and wants. Once you have your budget created, test it out for a month and see if it was successful. If it wasn’t, sit down and review each line item and make changes where necessary.
Open a Savings Account
Once your budget is complete and you’ve found extra income to put towards your emergency fund, you need a savings account to keep it in. If you don’t already have a savings account, or financial institution, check out our HFS Savings Account. You’ll have 24/7 access to your account online, competitive dividend rates, and more!
Set Money Aside
Now that your budget is complete and you have a savings account ready to add funds to, it’s time to start setting money aside. One of the easiest ways to do this is have your paycheck direct deposited into your checking account and have a portion of it automatically transferred to your savings. Many people automate their savings like this so that they don’t forget and use the money instead.
If you find that your budget is too tight to save as much as you’d like, here are some other ways to find extra money for your emergency fund:
Review any insurance policies to see if you can reduce your price and put your savings toward your emergency fund.
Review your subscription services and determine if you need them all. Things like music, movie and TV streaming subscriptions can add up quickly.
Have items around your house you don’t need anymore? List it for sale and put the proceeds in your emergency fund.
If you use cash, start saving your change and cash it in every so often.
Start a savings challenge, for example, saving all $5 bills in a jar and deposit that into your emergency fund.
Round Up the Change
When looking for additional ways to add to your emergency fund, a great option is finding an app that allows you to round up your purchases and move that money to your savings. There are apps out there that offer this and it’s an easy, no fuss, way to make small additions to your emergency fund that will add up over time.
Deposit Tax Refunds/Stimulus Checks
When tax season rolls around, many Americans receive a tax refund. What an easy way to grow your emergency fund! Just put that tax refund money straight into your savings when it comes in and you’re all set. (Make sure all necessities are paid for first.) Even if you need to use some of the refund, the remaining funds can still be set aside.
The same goes for the stimulus funds that have been distributed since the COVID pandemic began. If more payments are received in the future, use what you need to cover any necessities and save the rest for that rainy day.
Apply for a Savings Account with HFS Federal Credit Union
If you’re interested in opening a Savings Account with HFS so you can start your savings journey – come on in to any of our 6 locations and meet with a New Accounts Representative to get started, or submit your membership application online. There is a helpful checklist on our website that outlines the documents you’ll need to open the account. We can’t wait to help you build your emergency fund.