You've worked hard to get your personal finances and current budget into good shape. In fact, things are going so well that you see a long future ahead of achieving your financial dreams. Then, out of nowhere, life comes at you. Whether it's the loss of income, unexpected medical costs, or a vehicle breakdown, an emergency can disrupt your budget and send you into financial heartbreak. That’s where an emergency fund can help.
What is an Emergency Fund?
An emergency fund is a supply of immediately accessible money that’s set aside for unexpected expenses ONLY.
Why do you need an emergency fund?
An emergency fund is vitally important, ensuring that you can quickly access your funds when you need them. It can help provide peace of mind knowing that you can afford to pay for an unexpected expense such as a home repair, replacement of a household appliance or a medical emergency. Finally, an emergency fund helps you avoid borrowing too much or resorting to high-cost loans in times of uncertainty.
How do you start an emergency fund?
Start by opening a secondary checking or savings account designated for your emergency fund. Then commit to a monthly savings goal. Consider setting up a recurring transfer that moves funds into your emergency account automatically; you'll be saving money without even thinking about it. It’s also helpful to decline an ATM or debit card for this account to avoid any temptation to access your savings.
How much should you save?
While there is no one-size-fits-all answer, most financial experts recommend setting aside three to six months of living expenses. It may take time to build a fully-funded emergency fund, but there’s no need for the process to feel stressful or overwhelming. Start by aiming to save five to 10 percent of your pay check on the way to a $1000 goal, then a $2500 goal, and continuing to set higher goals until you reach your desired amount.
When should you dip into your emergency fund?
It’s tempting to access your emergency savings when you need some extra cash, but you should try to hold off unless you are facing a truly unexpected expense.
There's nothing quite like the security that comes with knowing that your finances can withstand an occasional unexpected event. Learn more about building emergency savings and other financial education topics with Hancock Whitney Financial Cents.
This information is general in nature and is provided for educational purposes only. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided and statements made by employees of Hancock Whitney should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney encourages you to consult a professional for advice applicable to your specific situation.
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