Creating a financial safety net is crucial to ensuring you’re prepared for an unexpected situation. A 2024 report found an estimated 55% of adult Americans had three months’ worth of emergency savings. Whether it’s a home repair or life-altering medical procedure, an emergency fund can help provide a cushion during stressful times.
What is an emergency fund?
Unlike a typical checking account that is used for everyday purchases, emergency funds are set aside specifically to provide financial assistance in times of need. Without these funds, you may find yourself turning to high interest credit cards or personal loans that can add to your stress level.
With an emergency savings plan, you’re better able to deal with the unexpected—and handle it without taking on avoidable debt. Another great way to view this is as a “Inconvenience Fund”, ready to step in and help out when small or big inconveniences arise.
How do you determine your target amount?
The general rule of thumb is to set aside enough money for three to six months of expenses. While this may not be possible based on your circumstances, even setting aside a small amount of money can add up over time.
Create a realistic goal for contributing to your emergency fund and stick with it as best you can. Consider how many people you are supporting—are you single or do you also have family members relying on you? Other factors to take into account include job stability, current health concerns, childcare and school tuition.
To help determine how much you can reasonably save, take a close look at your overall financial picture based on monthly income. Consider those items that are non-negotiables, such as rent or mortgage, utilities, insurance, groceries and loan payments. Be sure to include other monthly items like childcare and credit card bills. From there, define what you can put toward your emergency fund without causing a strain on your household to build a three- to six-month cushion. Saving even $50 a week can help cover a surprise expense and provide some relief when you need it.
How can you grow your emergency fund?
Once you’ve determined your goal, figure out the best—and readily accessible—option for saving your money. For example:
Earning a good return on this cash is great, however, it should never come at the expense of the liquidity and security you need. It is important to remind yourself that those dollars are there for peace of mind first, not to maximize growth. Your Busey advisor or banker can help you determine the right account for your specific needs and goals.
Key Points to Remember
While the idea of starting an emergency fund can seem daunting, keep in mind that every cent counts. While it may take months or even years to grow your emergency fund, knowing that you have set aside a few extra dollars each month can provide peace of mind.
By tracking your income and expenses, you’ll be able to set realistic goals for yourself and your family. While three to six months of savings are ideal, you can always start smaller and adapt your plan as you go.
To learn more about Busey Wealth Management’s holistic financial services, visit busey.com/wealthmanagement.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.