When unforeseen expenses hit, where do you turn? If you have an emergency fund, you can rest assured in knowing you have some extra cash reserved for those unexpected times you need it most.
An emergency fund is exactly what it sounds like: a fund only used in the case of an emergency such as a job loss, expensive car maintenance, major house repair or medical bill. Having an emergency fund in place for these unexpected expenses will help prevent you from borrowing money and possibly accruing a higher interest rate than you can afford.
One of the biggest challenges to starting an emergency fund is prioritizing saving when debts still need to be paid down. While high-interest debt should be a top priority, finding a balance between paying off debts and putting small amounts of money away is key.
In 2016, 47 percent of Americans could not afford an unexpected expense of $400 without borrowing money. To avoid falling into that statistic, start by determining a set amount you can afford to save each week. Next, define and document what qualifies as an emergency worthy of dipping into your fund. It’s important to not treat the fund as extra spending money. If you dip into your emergency fund once for something like paying routine bills or Christmas shopping, it’s easy to lose sight of the purpose of the fund.
Everyone, salaries low and high, can benefit from an emergency fund. The tricky part is deciding how much money to maintain in your fund. Many experts say you should set aside three months’ worth of salary. However, everyone’s needs are different based on their individual lifestyle and financial commitments.
To determine your savings goal, take advantage of our online Emergency Savings Calculator to assess how to best meet your needs based on your personal income, taxes and savings. Chesapeake Bank is here to help manage everything from your emergency fund to rainy day fund and hopefully lead to brighter days in your financial future.