Build An Emergency Fund For Life’s Unexpected Expenses

Life happens…sometimes bringing accidents or emergencies that are costly. Recently I had a ski accident that left me with a broken nose and shattered tibia. After two surgeries, several nights in the hospital, doctor’s visits and physical therapy, I am very grateful for health insurance. Despite the coverage insurance provided, I was still left paying my deductible and coinsurance. Thankfully, my wife and I have an emergency fund and were able to cover these costs.

Today, we’re giving you the 411 on creating your 911 and other emergencies fund.

Starting Your Emergency Fund

Having an emergency fund is like having a safety net for when life’s unexpected events happen. If you haven’t started one, you’re not alone…a recent Bankrate survey found⁽¹⁾ only 39% of American’s would be able to cover a $1,000 emergency with savings. A small emergency fund is the first step to building a fully stocked emergency fund. Experts recommend saving $1,000 or two weeks pay – whichever is greater – so you can cover those minor unexpected expenses like a car repair or broken appliance without having to use credit cards or borrow from family or other sources.

Once you have this buffer to handle life’s little curveballs, you can focus on saving for life’s larger emergencies, like job loss, unexpected travel, major medical expenses, etc.

How Much Should You Save?

Most experts believe you should save about 3 to 6 months’ worth of expenses in your fully stocked emergency fund. This means saving for your critical expenses such as:

• Rent or Mortgage Payment
• Groceries
• Utilities (gas, electric, water, garbage)
• Telecom (phone, cable, internet)
• Insurance (car, health, home)
• Transportation (car payment, gas, public transit)
• Monthly Debt (credit cards & all loans except a mortgage)
• Other Necessary Expenses

While some folks like to make sure their emergency fund can cover life’s luxuries, typically you wouldn’t include things like eating out, entertainment or nonessential shopping.

Where To Keep Your Emergency Fund

When deciding where to put your emergency funds, consider choosing an account that is:

1. Easily Accessible. You’ll want to make sure that you can access funds quickly in the event of an emergency. That said, keep the account separate from your main bank account so you’re not tempted to dip into your emergency fund for everyday expenses.
2. Interest Bearing. While making money isn’t the point of having an emergency fund, that doesn’t mean you can’t earn interest on your savings. Choosing a high yield saving account ⁽²⁾ or money market account allows you to access your money when you need it and earn interest to ward off the effect of inflation.
3. FDIC Insured. There is a difference between money market accounts and money market funds⁽³⁾. Money market accounts are insured by the FDIC* up to $250,000, while money market funds are not. This means it’s possible to lose some, or even all, of your principle.

Is It An Emergency?

Sometimes things that feel like an emergency can actually be budgeted for ahead of time.  You can plan for replacing your tires when they wear out (not an emergency), but you can’t plan for ski accident (emergency). Rachel Cruze⁽⁴⁾ recommends asking yourself three questions to determine if you need to tap into your emergency savings:

• Is it unexpected?
• Is it necessary?
• Is it urgent?

If you answer “yes” to all three questions, the situation likely justifies using money from your emergency fund.

How To Save $1,000 Quickly

With a little thought and planning, you can create a small $1,000 emergency fund fairly quickly.

1. Sell stuff you no longer use. This is one of the fastest ways is to bring in extra money. Take a look through your closets, basement, garage and other storage areas to see what you can find. Even the small items that may only bring in a few bucks can add up!
2. Save a little from each paycheck. Have a small amount from each paycheck automatically deposited into your savings or money market account every time you get paid.
3. Create a side hustle or take on a part-time job. Dog walking, babysitting, Uber driver, etc are all ways to save $1,000 quickly – or even create your fully stocked emergency fund!
4. Check your budget for places to save. Ideas like brown bagging your lunch, making coffee at home (vs. the local coffee shop) can really add up. If you don’t have a budget, now’s the time to start!

Get Started Today!

Worried you can’t save enough? Don’t! Do what you can, as consistently as possible and over time it will add up. The important thing is that you’re saving something. Remember, having an emergency fund can provide you with peace of mind when life throws you a curve ball!

Disclaimer: The information contained herein is general in nature and based on authorities that are subject to change. Churchill Mortgage guarantees neither the accuracy or completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Churchill Mortgage assumes no obligation to inform the reader of any changes that could affect information contained herein. This publication does not, and is not intended to, provide legal, financial, tax or accounting advice, and readers should consult their advisors concerning the application of tax laws to their particular situations.

*The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.

1. https://www.bankrate.com/banking/savings/financial-security-0118/
2. https://www.moneyunder30.com/high-yield-savings-accounts-compared
3. https://www.ally.com/do-it-right/banking/are-money-market-accounts-fdic-insured/
4. https://www.daveramsey.com/blog/quick-guide-to-your-emergency-fund