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Resolve to make this the year of the emergency fund

Google “Why you need an emergency fund,” and you’ll get a whopping 6.6 billion results. 

That figure may not surprise you since we’ve been going through a pandemic for the last 20 months or so—a pandemic that caused a shutdown that closed businesses and shed more jobs than the Great Recession of 2007-2009. 

While the federal government put a number of pandemic assistance programs into place, many families found themselves having to dig into their emergency funds, as these results from a December 2020 MagnifyMoney survey show:

  • Forty-three percent of consumers with an emergency fund tapped those funds during the pandemic.

  • The number jumped to 64 percent for those who were laid off or furloughed. 

  • Even among those who didn’t lose income during the pandemic, 26 percent still needed to access their emergency funds.

While the traditional ideal cited by financial experts is to have three to six months’ worth of expenses in an emergency fund, the lessons of the pandemic have some experts calling for a 12-month cushion. But according to a Bankrate July 2021 survey, 51 percent of Americans have fewer than three months’ worth of expenses in their emergency fund, with 25 percent of that number having no emergency fund at all. 

New year, new start

Since a new year is the time for beginnings, why not make your number one resolution for 2022 to build or strengthen an emergency fund? Don’t worry about how many months’ expenses to save yet. Just get started. And to help, we have 10 tips to make that as easy and painless as possible. 

1. Review your budget

What’s the minimum you need to cover your essential living expenses during an emergency? That’s your first ultimate goal. Don’t include “nice-to-haves” in this figure to start; once you’ve saved for the essentials, you can decide if you want to keep adding to the account or start a higher-yield account. 

2. Set your guidelines

Not every unforeseen expense is an emergency. Take time now to decide what constitutes an emergency for you. As an example, if you can manage an unexpected car repair without touching those funds, then don’t. You’ll have that much more available when a true emergency happens. 

3. Separate your savings

Don’t mix your emergency savings with your regular checking or savings account; open a separate account. And to help reinforce its purpose, name the account something that will remind you of its goal. Sure, Emergency Fund may not be a catchy name, but it gets the point across. 

4. Make it automatic

You won’t miss what you don’t see. Most employers provide direct deposit of paychecks, and many will let you deposit to more than one account. And if they don’t, most credit unions and banks have ways to move money over automatically. The important thing is to set up that automatic deposit. 

5. Start out small

Don’t stress your day-to-day cash flow too much. Whether it’s $5 or $50, commit to have a set amount per week, per paycheck or per month directly deposited to your designated account. The amount isn’t as important at this stage as focusing on developing the saving habit. As it becomes a habit (and it will!), increase the amount and/or the frequency as you can afford it. Even an extra $2 per week adds up. 

6. Keep goals manageable

Don’t get obsessed with saving three months’ expenses RIGHT NOW. Start with an achievable short-term goal of saving for two weeks in a row, or for one full month. Once you hit your first goal, increase your second goal a bit. And keep increasing as you hit each goal. Trust us: There’s something very motivating about seeing a growing balance in your savings account. 

7. Deposit found money

When you come home each night, empty your pockets of change (some savers even do it with dollar bills) and deposit it into your account every so often. Same with returnable bottles and cans—ask the cashier to give you the cash instead of applying it to your grocery bill. If you receive a rebate check, a birthday gift of money or a refund, deposit all or part of those checks to your emergency savings. 

8. Keep it liquid

Your emergency fund should be an account that you can access quickly—so even though the interest rate might be low, don’t make your emergency savings account a higher-interest but restricted one like a Certificate of Deposit. 

9. Trim where possible

This is a good time to take a hard look at what you’re spending, too. How much would you save if you switched from cable to streaming? What if you cut your number of takeout dinners per week by one or two? You’ll be surprised at how much you can save with a couple of judicious changes. 

10. Keep enjoying life

Building an emergency fund doesn’t mean you have to live like a hermit. You can still have a life, as long as you allow for it in your savings plan. As you reach each of your short- and long-term goals, find ways to treat yourself as a reward. Sometimes, a celebratory ice cream sundae can feel almost as rewarding as something more expensive.

With so much competing for your financial attention, it can be a challenge to save for something that may or may not ever happen—especially if you need to start small. The key is to start somewhere. Whether you’re just starting to save or you’re increasing your current emergency savings, remember that we’re always here if you’d like to discuss your future financial goals. 

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