Saving for Emergencies

Due to the recent pandemic, the Financial Wellness Center feels like it is a great time to talk about emergencies and how we can prepare for them financially. It is so important to save for a rainy day, but it’s also important to know how much you should strive to save.

If we were to define what an emergency fund is, we would say that “it is a sum of money that you contribute savings to each month that shouldn’t be touched unless the unexpected happens.” It is rather a simple concept, yet so many Americans don’t save for future emergencies. According to the latest financial security index, 28% of Americans do not have an emergency savings (bankrate.com). Having an emergency fund is extremely important to have not only for your physical wellbeing, but also your emotional wellbeing too. No one likes feeling like their lives are out of control, and no one likes the feeling of having an emergency and not being able to cover it financially. There are many different types of emergencies that can happen in your life, and many of them are inevitable. A few examples of this could be: your car breaks down, your heater breaks in the middle of winter, your main provider of the family loses his/her job, a sudden serious illness/death occurs in the family, a sudden pandemic, natural disaster, etc. Because of life’s extremely unpredictable nature, it is hard to think of all the possible scenarios that could happen. It is important to think about some of these possible emergencies, but sitting around for days worrying about them isn’t going to help us very much. We don’t have a magical glass ball, and we aren’t certain what is going to happen in our lives and when. So, what can we do? We can start our emergency fund.

Saving for emergencies isn’t exactly as complicated as some may think. All that is needed is a little self-control and planning. There is a personal finance principle called “paying yourself first”. It means that you take a portion of your paycheck each month and you put it towards your savings. One life hack that you can try is setting up your payments through direct deposit. This takes a percentage of your paycheck and automatically deposits it into your emergency savings. This is nice because you don’t even have to think about saving, it is done for you! It will be important to make a budget to find out how much you can comfortably save without making life too difficult.

Once you have started your journey of saving, you’ll wonder how much you should save to feel comfortable. This varies depending on which financial guru you ask. One that I feel works well is first making a goal to $1,000, and then saving 3-6 months of your living expenses. I anticipate that a majority of readers are students, and that 3-6 months of living expenses seems nearly impossible. That is ok, I am in the same boat as well. Please do not stress yourself out. This is a lofty goal that may take a few years to reach. The most important thing is to make sure that you get in the habit now. If you can only save $5 a month, having that $60 at the end of year 1 in your savings account is way better than having $0.

I promise that if you start your emergency savings now, you will have more peace of mind than ever before. Many people wait until the very last second to start saving. When the emergency happens, it is too late. This pandemic didn’t give anyone a huge advanced warning, and caught many people off guard. Please get in the habit now, your future self will thank you. Please stay safe, reach out if you have any questions.

 

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