Unforeseen expenses can pop up at any time — whether that’s surprise visits to the doctor, your car breaking down or losing a job.
Building an emergency fund can help ensure you'll be able to weather unexpected costs. It's not always easy to save when you've got bills to pay, but even a few hundred dollars can help. And once you start saving, you might find it easier to build momentum and grow this account.
What is an emergency fund?
As the name suggests, an emergency fund is a lump sum you can easily access in the event of an emergency. There are no rules on what counts as an emergency, but it should be used for essential expenses: You can tap your fund to replace a broken fridge, for example, but don't spend it on a fancy coffeemaker.
While an emergency fund can help with unexpected bills, it can also help you make ends meet if you’re laid off. Unemployment benefits are generally not enough to cover your cost of living. If you have an emergency fund, you can tap into it to cover utility bills, groceries and insurance payments while you're unemployed.
Keep your emergency fund in an accessible account, like a high-yield savings account, that allows you to access money within a few days. Both the Lending Club LevelUp Savings and the UFB Portfolio Savings allow your emergency savings to earn an above-average APY, so you'll have the added benefit of earning some interest on your savings.
LendingClub LevelUp Savings Account
Annual Percentage Yield (APY)
4.40% (with monthly deposits of at least $250), or 3.40%
Minimum balance
None
Monthly fee
None
Maximum transactions
Excessive transactions fee
None
Overdraft fees
N/A
Offer checking account?
Yes
Offer ATM card?
Yes
Terms apply.
How to create an emergency fund
Experts suggest keeping enough money in your fund to cover three to six months of expenses, but even a few hundred dollars is a good start. Here's how to grow your emergency fund.
1. Set a savings goal
The first step to building an emergency fund is to calculate how much money you can reasonably afford to save every month. Create a budget so you can understand how much you have left over after deducting fixed expenses, like food, insurance and housing.
In times of financial hardship, you may only be able to set aside $25 a week, but that's still a good start. The key is to save the most you can without going overboard. It’s okay to cut back on streaming subscriptions and food delivery, but make sure you don't lose momentum because you've sacrificed too many basics.
2. Automate deposits
Once you figure out how much you want to have in an emergency fund, the next step is to start saving: The simplest way to save money is to automate deposits. Set up automatic, recurring transfers from your paycheck that go directly into your emergency fund.
This is a great way to remove the temptation to spend the money on non-essentials or the risk that you'll forget to transfer it into your emergency account.
While you should have a regular automatic deposit, you can also transfer additional funds any time you get a bonus, gift or other windfall.
3. Monitor your progress
Automating your savings is a great way to passively add money to your emergency fund, but you shouldn’t set it and forget it. Monitor your progress and make sure you’re on track to meet your savings goal.
It’s also a good idea to make adjustments if your financial situation changes:, If you get a raise or a new job with a higher salary, increase the contributions to your emergency fund. If you're laid off or have a major setback, you may need to temporarily pause or decrease the amount you save.
As with many things in life, saving for an emergency fund is ever-changing and you should check in regularly to reassess the situation and make adjustments as necessary.
Emergency fund FAQs
How much should I have in my emergency fund?
The rule of thumb is to have enough money to cover three to six months of expenses. But anything you can contribute will help start you on your way.
How do I know if something qualifies as an emergency?
Only you know what's essential in your life, but there are some basic questions to consider before touching your emergency fund: Is this a necessary expense? Is it urgent? Is it unplanned? If the answer is yes to all three, you've got good reason to use your emergency fund.
Where should I put my emergency fund?
The money is intended for unexpected expenses, so it should be readily available. A CD will give you a good return but the money will be locked up for a year or longer. A high yield savings account is a good option because it combines easy access with a high yielf.
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