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How to start saving for an emergency fund

Illustration of hand dropping a coin into a piggy bank

When Ben Franklin declared that nothing is certain except death and taxes, he probably could have added unplanned expenses to the list. Because where money emergencies are concerned, it’s not if, but when.

While you can’t plan when your water heater will quit or your car tire will go flat, you can be prepared with an emergency savings account. Think of it as a cash cushion to absorb the blow when life throws an unexpected punch.

Having money in the bank when you need it most can help provide financial stability you can build on. And yet, one in four Americans surveyed (25%) has no emergency fund at all, up from 21% in 2020.

Why do you need an emergency fund?

Emergency savings is meant to help pay expenses that are usually urgent and unavoidable. If you suddenly need to travel to care for your mother, for example, or your cat needs surgery, an emergency fund can help carry you through the crisis.

Resist the urge to consider your emergency savings account a vacation fund. And try to avoid tapping into it for predictable expenses too, such as birthday gifts, auto insurance premiums or routine medical expenses.

How much should you have in emergency savings?

A common benchmark is to save enough to cover expenses for three to six months. Building up to that amount over time can give you confidence that you can manage financially if you lose your job or aren’t earning an income due to health issues, for example. And you’ll have money in the bank for smaller emergencies too.

The more you save, the more flexibility you could have when you’re forced to use your emergency funds for a longer period of time. As life takes its twists and turns, your financial needs will change too. With every job change or family milestone, you will want to reevaluate your savings needs.

What are the best ways to save for emergencies?

In a true emergency, you’ll need your money to be accessible, so consider an interest-earning savings account. It’s best to avoid accounts where your money isn’t easily liquid. A savings account will be available when you need it while earning a small return in interest.

If you already have a savings account, you might save an extra cushion of funds in a lower-risk, higher-liquidity option, like a money market mutual fund or a certificate of deposit (CD). Don’t have a savings account? Thrivent Credit Union has an Emergency Savings Share account dedicated specifically for this purpose.

If possible, save your cash reserves in an account separate from your checking and other savings. Keeping the money at a different bank or credit union will help reduce the temptation to use it on impulse.

How do you start to save for emergencies?

Make emergency savings a priority with automation

From streaming services to utility bills, virtually every expense can be paid automatically from your spending account. Likewise, your contributions to tax-deferred retirement accounts at work may be automatically deducted from your paycheck. Consider adding your emergency savings to the list of accounts you already automate. Then it can grow without any decision-making effort from you.

Ways to automate your savings:

  • Schedule automatic transfers. Scheduling regular transfers can help ensure you add to your savings at an interval of your choosing. It could be on payday or a certain day you pick each week or month.
  • Dedicate a portion of your paycheck from the start to savings. Request that your employer deposits a portion of your paycheck directly into your savings account. Where saving is concerned, you might have more success saving first versus hoping to set aside money after all your other expenses are covered.
  • Use savings apps. You can find a wide range of apps that foster savings directly to an account you designate. Find out if your bank or credit union offers a round-up option to build your savings every time you make a purchase.

In addition to automatic transfers, you might save all or part of various windfalls you receive during the year, such as gifts, rebates, bonuses, tax refunds and inheritances.

Set a savings goal

There are many reasons to have an emergency savings account, and near the top of the list is it could lead you to a better understanding of your overall financial situation. Striving to save could motivate you to track your expenses or create a budget if you don’t already have one. If you study where your money is currently going, you may uncover dollars to save.

Having money for emergencies may inspire you to save more for long-term goals as well, such as retirement or college costs. It all starts with having a clear goal in mind.

Factor your personal circumstances when setting a savings goal

You may have more than one wage earner in your household, or you may have a stay-at-home spouse. Perhaps you’re self-employed with income that fluctuates. Those considerations could affect your ability to cover a money emergency while juggling everyday expenses.

Focus on saving consistently

Start with small goals and work up to save more. For example, commit to saving enough to buy groceries for a week. Then, build your savings to cover your monthly rent or house payment. Tangible goals you can achieve may keep you motivated.

Make the goal realistic

Speaking of goals, avoid setting a goal your circumstances make it impossible to reach. On the other hand, you want a savings goal that’s challenging enough so you feel a sense of accomplishment when you reach it.

As you begin reaching these goals, the process of saving may get easier. The challenge of reducing expenses could be replaced by the satisfaction of watching your savings grow.

Work to get any debt paid down

You may be asking, “How can I save money when I’m trying to pay off my debts?” And it’s a valid question. The thing about saving is, starting small is better than not starting at all. Take a look at your regular expenses to see if you can squeeze a few dollars every week to set aside in your emergency account.

Having some money saved might help you avoid adding even more to your debt when the next unplanned expense pops up. Then, instead of making a credit card payment with possible interest, you can add it to your emergency savings.

Using a credit card for emergency expenses is not a good strategy

If your plan for facing financial emergencies involves using your credit card or line of credit, you certainly aren’t alone. But that choice could leave you facing even more debt.

Let’s say you lose your job and rely on a line of credit to pay bills. You’ll have to start making payments on that credit almost immediately, and typically you’re going to be charged a significant interest rate.

There’s potential that a brief setback until you find a job could last much longer because you’ll have to pay the interest that’s accumulating.

Start by putting a plan in place

Let’s face it, your emergency savings serves a purpose. If you need to use some of the money to cover an unplanned expense, commit to replenishing your account. It’s another way to reinforce your decision to save in the first place.

The more prepared you are for the emergencies you will encounter, the more confident you may feel about the future. Talk with your financial advisor about ways to maximize your savings goals, or sign up for Money Canvas from Thrivent—a free coaching program that helps you build healthier budgeting, saving and spending habits.

Deposit and lending services are offered by Thrivent Credit Union, the marketing name for Thrivent Federal Credit Union, a member-owned not-for-profit financial cooperative that is federally insured by the National Credit Union Administration and doing business in accordance with the Federal Fair Lending Laws. Insurance, securities, investment advisory and trust and investment management accounts and services offered by Thrivent, the marketing name for Thrivent Financial for Lutherans, or its affiliates are not deposits or obligations of Thrivent Federal Credit Union, are not guaranteed by Thrivent Federal Credit Union or any bank, are not insured by the NCUA, FDIC or any other federal government agency, and involve investment risk, including possible loss of the principal amount invested.

Must qualify for membership in TCU.