Emergency savings basics: What you need to know

Fact:  Covering everyday expenses, paying your bills, and saving for retirement all while making sure you’re prepared for an emergency is easier said than done. Especially if there’s only so much money to go around. That’s why you need emergency savings. Without money to cover you in an emergency, one big unplanned expense can knock you off track.

Understandably, people who report having no emergency savings are more likely to overdraw their checking accounts, rely on high interest credit cards, and withdraw money from their retirement accounts.*

Fact:  Yes, an emergency can be a spending shock, or one-time expense that pops up, like fixing an appliance or repairing your car. But it can also be an income shock, which is something that affects your budget long term, like losing your job or battling an ongoing illness. You should be prepared for both.

Fact:  The amount you should aim to save will depend on your lifestyle and financial situation, but those can change over time as your finances evolve. Or maybe you just used a chunk of your savings on a recent emergency and need to replenish it. Either way, it’s a good idea to look at your emergency savings every so often, making sure the amount you’ve saved matches your current situation, and adjust them accordingly.

Use these 3 quick tips for building your emergency savings:


1. Do your best to stash away whatever you can to pad your savings in case something happens. If you can’t afford it, use one-time opportunities to save, like tax refunds or bonuses.

2. For short-term spending shocks, try to save enough money to cover at least $2,000, or 2 to 4 weeks of expenses. Many people like to keep these sav­­ings in an account that’s easy to access and charges minimal fees.

3. For longer-term shocks, try to have at least 3 to 6 months of living expenses on hand. Because these kinds of income shocks are less likely, many people invest this money in a taxable brokerage account, or if their income allows it, a Roth IRA.** If you use this approach, your money could grow over time, and you’ll still be able to get it when you need it.­­­­­

In the end, the best defense is a good offense. You never know when an emergency will happen, 
and you don’t want to be worried about how you’re going to pay for everything when you’re in the middle of a crisis.


So, start saving now! You’ll rest easier knowing you’re prepared for anything.