An emergency fund is a savings account where you set aside funds for an emergency, such as the loss of a job, an illness, or one of life’s many “what ifs.”
The biggest financial worry for most people is how to pay for unexpected emergencies. It's incredibly hard to avoid unexpected financial emergencies, so the best thing to do is to plan for them. When you have an emergency fund, you will not need to pay for emergencies with credit cards that are not in your spending plan.
Experts recommend saving three to six months of income for a rainy day fund. That can be intimidating, and we acknowledge that half of Americans have less than one month’s income saved for a rainy day, and one in three say they cannot cover a $400 emergency. The good news is that you can start small. Try opening a savings account with $50 or $100 and build your rainy day fund from there.
You may find that $400-$2,000 will cover the majority of minor crises, but costly emergencies may arise. These include situations like:
A trip to the hospital emergency room
A surgery that maxes out your insurance
A sick pet
Your vehicle breaking down
Plumbing or electrical problems
Your electronics or home appliances need to be replaced
You get sick and miss time from work and have no paid time off
Your financial counselor may encourage saving as your single most important financial task! They adhere to the personal finance philosophy of “Pay Yourself First!” Think about it: If you earn the money, shouldn’t you be paid first? If you need assistance setting up a savings account for an emergency fund, reach out to your financial counselor for one-on-one help!