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Rainy Day Ready: The Importance of Building an Emergency Fund

Our team at Legacy Bank details everything you need to know about building an emergency fund!

Life is full of surprises—some are pleasant, like an unexpected promotion or a spontaneous weekend getaway, while others, such as a sudden car repair or a medical emergency, can catch you off guard financially. That’s where your emergency fund comes in! Having a financial safety net can help you and your family feel comfortable and secure, knowing you’ve planned for unexpected expenses. Our team at Legacy Bank is exploring what an emergency fund is, how much you should reasonably save, and providing tips for building your fund. Keep reading to start saving today!

 

What Is an Emergency Fund?

An emergency fund is a cash reserve set aside specifically for unplanned expenses. Think of it as your financial umbrella for life’s rainy days. Unlike savings for planned goals—like a vacation or a new car—an emergency fund is reserved for common emergencies, such as:

  • Major Medical Bills
  • Significant Car Repairs
  • Unexpected Home Projects
  • Job Loss or Loss of Income

How It Helps! The purpose of an emergency fund is to help you avoid debt when faced with these unexpected costs. By having cash readily available, you can tackle financial surprises without reaching for a credit card or dipping into long-term investments.

 

How Much Should I Save?

The amount you need in your emergency fund depends on your personal circumstances, including your income, expenses, and lifestyle. If you’re just starting to build your emergency fund, try to set aside at least enough to cover an unexpected bill or expense (around $500). Once you can establish a fund, a common rule of thumb is to save three to six months’ worth of living expenses. Here’s how to determine your personal target amount:

  1. Calculate your monthly expenses. Add up essential costs like rent or mortgage, utilities, groceries, insurance, and minimum debt payments.
  2. Multiply your expenses by three or six. Aim for at least three months’ worth of living expenses if you have a stable job or dual-income household. If your income is variable (such as freelance work) or you’re the sole breadwinner, aim for closer to six months of savings.

Let’s See an Example: If your essential monthly expenses total $3,000, your emergency savings fund goal should be between $9,000 and $18,000.

 

Where to Store Your Emergency Fund

Before you can start contributing savings to your emergency fund, you’ll need to decide where you’ll keep your money. To avoid the temptation of dipping into this fund, set up an account separate from your everyday bank account. It’s important to prioritize security and accessibility—an emergency can happen anytime, so don’t make the mistake of having your funds tied up in long-term investments like stocks or mutual funds (their value can also fluctuate and not be ready when you need it most!). Our team at Legacy Bank recommends utilizing the following options:

  • High-Yield Savings Account: High-yield savings accounts offer higher interest rates than traditional savings accounts, helping your money grow while remaining easily accessible. These accounts are federally insured up to $250,000 per depositor, per ownership category, per financial institution, making it a secure option for customers.
  • Money Market Account: Similar to a savings account, money market accounts often offer slightly higher interest rates and check-writing privileges, making it easy to access your money during an emergency.
  • Bank or Credit Union: If you already have an account with a bank or credit union, it’s easy to set up another dedicated account for your emergency savings. This way, everything is kept under one roof! Not to mention, banks and credit unions are generally considered the safest and most secure place to keep your money.

Browse Legacy Bank’s saving account options and earn money just for saving!

 

How to Build Your Savings

If starting an emergency savings fund seems daunting, that’s okay! Building a fund that covers three to six months of expenses takes time and consistency, but it’s achievable with a clear plan. (Even the smallest contributions add up over time.) Some simple ways to build up your savings without stressing include:

  • Setting a Realistic Goal: Instead of setting an outlandish initial savings goal, start with a realistic amount you would like to contribute each month. These smaller contributions can give you the necessary momentum to keep saving and will feel like less of a burden than one large deposit.
  • Automating Your Savings: Set up automatic transfers from your checking account to your savings account to make saving effortless. This way, you don’t even have to think about it!
  • Saving Extra Whenever Possible: Allocate portions of bonuses, tax refunds, or other unexpected income to your emergency fund.
  • Celebrating Milestones: Reward yourself for hitting savings milestones to help yourself stay motivated along the way!

Legacy Bank Can Help You Earn Money Just for Saving!

Visit a nearby branch location to open your personal savings account today.

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