IN CASE OF EMERGENCY:
'RAINY DAY' SAVINGS
"Save your pennies for a rainy day." You've probably heard the idiom. But if you were hit with a major unexpected expense, exactly how many pennies would you need?
The rule of thumb suggests three to six months of expenses for emergency savings. But that number can feel daunting, particularly when you're balancing other financial priorities. Regardless of where you're starting, we have tips to help you save – and store – your rainy day funds.
Student or Early in Career
How to Save:
You may have little to no disposable income right now – and that's completely normal. But when it comes to savings, remember: Consistency counts. If you set aside even as little as $5 each week, you'd save $260 each year to help cushion against emergencies.
Where to Save:
Store your emergency funds separate from your normal checking and savings – or even at a completely different financial institution. Keeping the money isolated will help reduce temptation to use it for non-emergencies.
Career-First
How to Save:
Rent. Credit card balances. Student loans. With so many financial obligations, prioritizing emergency savings can be a challenge. That's why it may help to put it on autopilot. Commit a fixed portion of your paycheck to automatically deposit into your emergency savings account, or set up a direct deposit with your employer.
Where to Save:
In a true emergency, you'll need your money to be accessible. But not "stashed-in-your-mattress" accessible. Instead, consider an interest-earning savings account. Doing so will allow your money to earn a bit of a return and still be available when you need it.
Balancing Work & Family
How to Save:
Life is constantly evolving. That's why it's important to revisit your emergency savings needs at each milestone, including the birth of a child, a career change or a home purchase. As you continue to pay down existing debt or ongoing expenses, consider putting that money towards your emergency fund.
Where to Save:
You may already have some funds earmarked for emergency savings. If you're already taking advantage of an interest-earning savings account, consider saving up an extra cushion of funds in a lower-risk, higher-liquidity option like a money market account or a certificate of deposit (CD).1
Nearing Retirement
How to Save:
Right now, your top savings priority is likely focused on retirement. But don't forget emergency savings, too. You can allocate tax refunds, bonuses or side job earnings toward those reserves. And those funds can come in handy if you need a new roof, refrigerator or an unexpected surgery in retirement.
Where to Save:
Keep your retirement savings and emergency savings separate. Consider building up your rainy day cushion in its own savings account with a competitive interest rate.
Living in Retirement
How to Save:
Living on a fixed retirement income can make it hard to account for potential emergencies – like surprise health care needs or home repairs. Take a look at your current budget to see if you can set aside some money for unexpected expenses. And, if you're 72, (or 70 ½, if you reach 70 ½ before January, 2020) another option may be to use your retirement accounts' required minimum distributions (RMDs) to help build up those funds.
Where to Save:
If you already own investments, consider allocating extra reserves in your portfolio for emergencies. An interest-earning savings account may also be a helpful vehicle for setting aside that money.
Calculate Your Emergency Savings
A good rule of thumb is to have enough money to cover 3 to 6 months of expenses.
Your Estimated Monthly Expenses:
x 3 =
x 6 =
1 CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, by the Federal Deposit Insurance Corp. (FDIC). An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. A money market fund seeks to maintain the value of $1.00 per share although you could lose money. The FDIC is an independent agency of the US government that protects the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government.
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