Preparing for a Financial Emergency 

Preparing for a Financial Emergency  Brogan Financial

Financial Emergencies. They can be unforeseen home repairs or major appliance replacements, major car repairs, unexpected medical expenses, or even unemployment. 6 out of 10 households in America experience at least one financial emergency in a year. However, about 1/3 of American families do not have any savings and would struggle to come up with $400 to help cover an emergency.1 Financial emergencies happen, but how can you make sure that you are prepared?

What is an Emergency Fund?

It is exactly what it sounds like. It is a bank account with money set aside for emergency expenses. An emergency fund gives you a financial cushion that can be used for emergency situations without having to put purchases on credit cards or take out high-interest loans.

How much should I have saved for an emergency?

It depends on your personal financial situation. A good rule of thumb is to have enough to cover three to six months’ worth of living expenses. This is especially critical if you find yourself unemployed. In Tennessee, eligible claims may receive up to $275 per week in benefit payments.2 More than likely, that will not cover all of your expenses, but will be a supplement to your emergency fund until you find work again. If this seems like a daunting task to save that much when funds might be tight, start small. Whether its $5 a week or $50, every dollar can make a difference when it comes to an emergency fund. Budget an amount you can afford and consider it spent so you aren’t tempted to spend it now instead of saving.

Where should you put your emergency fund?

Ideally, your emergency fund should be in a savings account with a high interest rate and easy access. Quick access to the money is crucial if an emergency arises. The account should be separate from the bank account you use daily, so you’re not tempted to dip into your reserves. A high-yield savings account is a good place for your money. At an FDIC member bank, you’re federally insured up to $250,000 per depositor, per ownership category, per financial institution so it’s safe.3

When saving, draw a line between emergencies and everything else. Once you hit your emergency fund goal and you are maxing out your retirement contribution limits, you can work on saving for other things. Most banks allow you to open separate savings accounts or subaccounts for different financial goals – vacations, new car, holiday spending, etc.

Everyone should have an emergency fund and save for the unexpected. Being prepared can be the difference between weathering a financial storm in a boat with no leaks or feeling like your head is under water. If you need help in getting started, visit your financial professional or bank for guidance on where to start.