Building an Emergency Fund…Because You Never Know

It’s a horrible situation to be in, but it’s one that is all too common. A loved one becomes seriously or terminally ill, and insurance does not cover even half the costs. Not only does the family worry about their loved one, then, they begin to wonder where the funds will come from to pay for quality care. But this is not a blog about health insurance or long term care insurance. It’s about having an emergency fund.

No matter what income bracket you fall in, it’s important to have resources you can pull from and still maintain quality of life for you and those you care about. We’ve discovered that the people who have the most are sometimes the most frugal, which adds up to having the kind of emergency fund needed when disaster strikes. Here are some simple ways to build your savings without sacrificing the things you enjoy the most.

How Do You Build That Fund?

Set a monthly savings goal. Smart emergency fund builders set a savings goal as part of their budget, giving them something to strive for. To do this, they often adopt the “pay yourself first” mentality. This goes above and beyond the typical retirement savings.   The rest is budgeted out for needs and wants. These goals may change depending on the type of career you have, the fluctuating market or other factors that affect income. It’s important, then, to reassess savings goals often, whether you anticipate a change or not. See how close you are to reaching your goal and adjust accordingly.

Keep the change. This might sound eccentric, but we know people who still carry and pay in cash. We also know people who save those nickels and dimes they get back in change, not necessarily so they can make a down payment on a new car, but so they don’t use their savings on impulse buys. This behavior goes back to childhood sometimes. There was something gratifying about saving money in a piggybank, stashing away enough coin to buy a new toy, right? As adults, we still love our “toys,” so holding on to that change can make a difference when we want that new – but unnecessary – pair of shoes. Go ahead and splurge. No harm done. The money is in the coffee can on top of the refrigerator.

Save your tax refund. Although we don’t necessarily recommend planning for a tax refund, it is one way to add to your emergency fund. While it might be tempting to take a long, well-earned vacation with that tax refund, many savers add part of their refund to their emergency fund instead so they have a better buffer in a time of crisis. This can be a quick boost to any padding you are building on a regular basis. (In reality, though, getting that money in your monthly check and adding it to a savings account is the best option here.)

Cut back on costs. Many savers look for other areas in their budget to cut costs. No one wants to go without needs and, of course, we like our luxuries. If we look, we can all find ways to save money, such as eating out less frequently and looking for deals on things we want to buy.  Keep an idea of what your emergency fund balance should be and allocate some of the funds.  

How Much Are You Saving?

As mentioned in a previous article, there are many ideas floating around about how much cash a household should have stored up for an emergency. Some will tell you three times your monthly income, while others might say you need to save six times your monthly bills to be in a secure position in times of an emergency. What is important is that the fund plan is right for you and your personal financial situation. Talking with a trusted financial advisor can help you build a financial plan you can feel confident about, even in times of emergency.

Where to Save it

Some may wonder, how much should I have in a checking account, savings account or other type of account? The short answer is that you should have any of these savings in an account or vehicle that gives you quick access if you have the need. Don’t put these funds into a stock or mutual fund that may fluctuate, as you may find it in the “down” cycle when you need it. Do put these into “principal protected” types of savings so that you know you can rely on it being there when the time comes.


Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

“Finance Made Simple” blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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