What’s the point of having an emergency fund?

The main purpose of an emergency fund is to have easy access to money when you need it the most. After all, emergencies can happen at any time. 

For example, your house might get flooded, your car could get totaled, or you might wind up with a devastating injury. It could even be as small as a busted tire, a broken arm, or a trip to the emergency room.

No matter how it happens, emergencies create unexpected costs that could leave you in financial trouble. Every adult should have an emergency fund to tap into when disaster strikes.

What do you consider enough for an emergency fund?

If you’re wondering how much to have in your emergency fund, whatever you can save upfront is a good start. When you’re thinking about how much to save, think about how much money you need to cover your base expenses. Go with that and then build from there.

However, on average, emergency funds should at least cover a month’s worth of expenses.

The next goal recommended by financial experts is to have enough in your emergency fund to cover your costs for at least three months. Once you hit that goal, you should use your savings plan to cover at least one year of expenses.

Now, these recommendations are generalized so you can calculate your goals accordingly. However, if you would like a solid number to work towards, try to start saving at least $1000 for your emergency fund.

How to save an emergency fund when money is tight?

Saving money is a conscious choice. You might already have student loans, car loans, or a mortgage you’re trying to pay off. It might never seem like the right time, but building a smart savings plan now will help you deal with huge financial challenges in the future. Saving money is an investment in yourself.

And once you get in the habit of setting, saving, and meeting your financial goals, you’ll be able to pay down the rest of your debts.

How do I build an emergency fund?

Now, if you’re feeling like you don’t have enough money right now, you have two options. Either cut out unnecessary expenses or generate more income. Here are a few suggestions to help you save money within these two categories.

Eliminate Unnecessary Expenses

1. Unsubscribe

Woman deciding what to watch through streaming services.

Do you have multiple subscriptions to online services you don’t use? Do you subscribe to lots of streaming services and end up only watching your favorite comedy over and over again? It might be time to cancel some of your subscriptions.

You don’t have to drop all your subscriptions, but ask yourself which ones you use the most often. And if you’re waiting for a particular show to come out, take a break for a few months until it starts streaming. 

These services don’t cost too much individually, but if you can take a break from three or four, you can save around $30 per month or more. It’s not much, but it can help you find money to add to your savings account.

2. Keep Track of Your Expenses

Impulse buying is so easy to do these days, especially with credit cards linked into every online retailer. The best way to combat impulse buying is to keep a budget and keep track of your spending. Use whatever method works best for you.

  • Make a spreadsheet and calculate your cashflow
  • Keep a note on your phone
  • Download a budgeting app
  • Sign up for a self-reliance class
  • Write it down in a pocketbook

3. Put Away Your Tax Refund

What a better way to save money than a sudden windfall? Granted, tax returns fluctuate for everyone, and they might help you pay important bills. But, save as much of it as you can.

Generate More Income

1. Sell Unused Items

If you’ve got a bunch of stuff in your house that’s in good condition, it might be time to have a yard sale. You can get rid of your old and unused items and make a little money back on them too! Typically, you see yard sales in Tennessee pop up in the spring and summer for the warm weather and after spring cleaning. But, there’s no reason you can’t host one in the fall.

Or, take some time and sell your old stuff on your local Facebook Marketplace or Offer Up Nashville.

2. Pick Up a Side Hustle

You don’t have to start your own business, but there’s plenty of services you could sign up to do odd jobs in your spare time. You should become an Uber or Lyft driver and help people get from Clarksville to Nashville. 

You could also register with DoorDash, Postmates, or Takl. You don’t have to do it for long before the money starts coming back to you. Plus these are all apps that let you choose how much and when to work.

What is the best investment option for an emergency fund?

There’s a lot of options out there for where to keep your emergency fund. Savings accounts are the best primary option. Since you need an account that gives you security and liquidity, a high-yield savings account is a great option. In contrast to checking accounts, savings accounts have higher interest rates, meaning you can truly save more and more money as time goes on.

A few more choices include a short-term certificate of deposit and money market accounts. Both of these additional options provide higher interest rates than a traditional checking account.

Should I get a Certificate of Deposit for an emergency fund?

Taking out a certificate of deposit is usually a long-term investment. However, you can start aggressively saving with a short-term CD for 90 days. The problem with using a CD for emergency savings is they come with service charges for early withdrawals.

Because the point of an emergency fund is to have access to money when you need it most, a CD might not be the best option. But, if you’d like to compound your current emergency fund, using a portion of it in a CD would give you access to compounding interest earnings and aggressive interest rates.

Are Choice Money Market Accounts a Good Option?

If you want secure savings, easy access, and interest-earning, then yes! All of our money market accounts are FDIC-insured up to $250,000. So your emergency fund can grow safely until you need it. You can also make deposits at any time, and you have 24-hour access through online banking services.

We also offer accounts with tiered interest rates. So there’s no better way to incentivize growing your account by earning back even more interest. See the latest interest rates at F&M Bank.

What About A Roth IRA?

Typically, an IRA would not make a good option for an emergency fund. The IRS can impose fees on any withdrawals made prematurely. However, a Roth IRA does allow for withdrawals, but only after certain conditions are met. At F&M Bank, you will need to be at least 59 and a half before your qualified distributions become tax-free.

The advantage of an IRA is that your interest earnings remain tax-free in your account. So, if you’re close to retirement and already have access to some emergency money, a Roth IRA may be a useful option.

Should I Keep My Emergency Savings at a Local Bank?

If you don’t spend a lot of time traveling, then a local bank, like F&M Bank would be your best option for taking care of your personal finances. Plus we provide products and services such as ATMs, perks, apps to tell you where to go to get money. At F&M Bank we also have a mobile app to help you handle transactions and easily manage your finances.

Could I use an online bank for my emergency fund?

Yes, working with an online bank can help you get some of the highest yielding interest rates. However, handling deposits can be challenging, especially when setting up your account at first. But f you want the most accessibility, working with a brick and mortar traditional bank that has online banking options is a great way to go.

When is the best time to start saving?

The best time to start saving is yesterday. So the more you can do today to start saving money, the better. If you’re wondering if it’s a good time to start a savings account or you are waiting for the Federal Reserve rates to improve, come talk to one of our financial experts at F&M Bank.

You never know when an emergency will strike. So, get started saving today!