Moore for Your Money Blog

Due to the recent chaotic weather in the great state of Texas, rising temperatures at record levels already, and Hurricane Season now upon us, it is time to talk about the importance of an emergency fund. Setting up a dedicated savings or emergency fund is an essential way to protect yourself, be it a fender bender, unexpected medical bills, a broken appliance, loss of income, or even a damaged cell phone. Large or small, these unforeseen expenses always seem to hit at the worst time. By putting money aside—even a small amount—for these unplanned expenses, you are able to recover quicker and get back on track towards reaching your larger financial goals.

What is an emergency fund? An emergency fund is a cash reserve that is specifically set aside for unplanned expenses or financial emergencies. Emergency savings can be used for large or small unplanned bills or payments that are not part of your routine monthly expenses and spending.

Why do I need it? Without savings, a financial shock—even minor—could set you back, and if it turns into debt, it can potentially have a lasting impact. Studies show that individuals struggling to recover from a financial shock have less savings to help protect against a future emergency. They may rely on credit cards or loans, which can lead to debt that is harder to pay off. They may also pull from other savings, like retirement funds, to cover these unexpected costs.

How much do I need? The amount you need to have in an emergency savings fund depends on your situation. Think about the most common kind of unexpected expenses you have had in the past and how much they cost. This may help you set a goal for the amount you want to have set aside. If you are living paycheck to paycheck or don’t get paid the same amount each week or month, putting any money aside can feel difficult. Even a small amount can provide some financial security. A good goal is to have three to six months of expenses saved.

How do I build it? Building savings of any size is easier when you are able to consistently put money away. This is one of the fastest ways to see it grow. Set a specific goal to help keep you motivated. Start small, set up monthly or weekly auto transfers in a comfortable amount and build from there. Check in on your account regularly to watch your progress. Keep these funds separate from your regular checking account and only use the fund for true emergencies. If you do use the funds, replenish the account as soon as you can.

Where do I keep it? Where you put your emergency fund varies with your situation. The funds should be kept in an account that is easily accessed and easily liquidated. A bank savings account or money market account are great options. You might also load money onto a prepaid card.

Having an emergency fund for financial shocks can help you avoid relying on other forms of credit or loans that can turn into debt. If you use a credit card or take out a loan to pay for these expenses, your one-time emergency expense may grow significantly larger than your original bill because of interest and fees. Plus, this just adds stress to an already stressful situation. However, do not be afraid to use your funds if you need them. If you spend down what is in your emergency savings, work to build it up again. Practicing your savings skills over time will make this easier. Stop into any Anahuac National Bank family of banks and we can get an account opened for you quickly. We are always here to help and weather life’s ups and downs together. We value your patronage.