If you don't yet have money set aside in an emergency savings account, start by setting a reasonable goal amount to save towards. Then, set a process to help you do that, such as setting up an automatic deposit from your paycheck into a new or existing savings account. Keep saving until you feel confident and secure in the event of a financial emergency.
How Much Will I Need in My Emergency Fund?
There are a few ways to determine how much to save in your emergency savings account. Let's look at the options below to choose what works best for you. Remember, start small and work to save up to your goal.
- Option #1 - Monthly Expenses: Add up 1 month of expenses and multiply by the number of months that makes you feel most prepared for emergencies, anywhere from 3 to 6 months.
- Example: If your monthly expenses are $2,000, then multiplying that by 3 to 6 months means you'll work to save $6,000 to $12,000 in an emergency fund.
- Option #2 - Income: Save enough to cover 3 to 6 months of your income.
- Option #3 - Past Emergencies: Review any unanticipated expenses or emergencies that occurred last year. Add up those costs and aim to save at least that amount for the next year.
Best Practice
Set money aside in a separate savings account and aim to save 3-6 months' worth of living expenses to help cover you in those situations.
Reasons to Build an Emergency Fund
Unexpected expenses can happen anytime - your emergency fund can help pay for them and keep you on track to achieve your financial goals.
Ask yourself: "Which of these could happen to me, and how would I pay for them today?"
Home & Utilities
- Rent, insurance, or utility increase
- Appliance repairs (stove, fridge, washer, dryer, vacuum)
- Garage door repair
- Emergency plumber or electrician
- Basement or garage flood
- Tree or branch damage
Vehicle & Travel
- Car repairs, new tires, tow fees, fender bender
- Traffic or parking tickets
- Lost luggage
- Unexpected travel for funeral or event
- Work travel paid upfront
Health & Personal
- Children's sports or extracurricular costs
- Emergency dentist or vet visit
- Prescription costs
- Copays for ER visits
- Work absence due to illness (hourly/self-employed)
Where Should I Keep My Emergency Savings Account?
When deciding where to keep your emergency fund, there are two features to consider:
- Set up your emergency savings account where you'll have easy access when you need it
- Maintain separation between your emergency savings account and your day-to-day transactional accounts
What Happens if You Have to Use Your Emergency Funds?
If you use your emergency savings account to pay for an unexpected expense, that's great. That’s what it’s there for. Once funds get used and your emergency is behind you, begin rebuilding your savings.
Action Steps You Can Take Today
- Establish a separate bank account for your emergency fund.
- Create a direct deposit or automatic transfer to regularly contribute.
- Define what "emergency" means to you and any rules for your emergency fund.
- For example, "I will not use these funds for unexpected plans with friends".
Continue Your Financial Wellness Journey
Next Module: Build Your Credit
Previous Module: Create Your Financial Goals
Overview: Your Financial Wellness Journey
Your Safety Net Starts Here
From unexpected expenses to life’s little surprises, we’ve got you covered. Start your savings account with Bangor Savings Bank and feel confident about the future.