Unable to Cover a $400 Extra Expense? Here’s How to be Better Prepared
September 5, 2019
Unexpected expenses, such as car repair or replacing a broken appliance, can be a hardship for many families without adequate savings. In a 2017 Federal Reserve study, four in 10 adults stated they would have difficulty covering a $400 unexpected expense. While financial setbacks can happen to anyone, having an emergency fund can help ensure they don’t become burdens.
Why an emergency fund?
Unforeseen medical bills, car repairs, or house expenses are costs that could cause major problems if you don’t have money to cover them. When you face hardships without savings to draw on, you may need to take on debt that you’ll owe interest on. An emergency fund — money set aside to help protect you when you face costs you didn’t plan for — can help keep your budget intact.
How much should you save?
It’s not easy to figure out how much to save for your emergency fund since you won’t know what expenses you’ll face during the year. Many financial experts recommend keeping three to six months’ worth of savings tucked away based on your monthly living expenses. If that seems overwhelming, create a starter emergency fund of $50 to $100 to help protect you financially from minor expenses.
How can you build an emergency fund?
To help build your emergency fund, first create and follow a budget that prioritizes saving money. Treat contributions to your emergency fund as a bill you have to pay, and consider setting up automatic contributions to ensure you are adding to this account regularly.
Where should keep your emergency fund?
Your emergency fund should be kept separate from your checking account and be accessible if you need it. This money isn’t an investment — it’s a safety net.
High-yield savings accounts and money market accounts are good options for emergency savings. Look carefully at account requirements to find out if there are monthly fees, monthly transaction limitations, or other requirements, such as maintaining a minimum balance.
MSUFCU offers several savings products to help you get started with your emergency fund. From standard savings and money market accounts to Certificates, we have a variety of dividend-paying accounts to fit your needs. Plus, you'll have free 24/7 account access through our Mobile app and ComputerLine, and can easily move money between your MSUFCU savings account and other accounts.
An emergency fund offers you peace of mind. You also may be less likely to deal with long-term financial issues, like credit card bills that you could be still paying long after the emergency is over.