Life doesn't always go as planned and it's important to have a backup plan. Savings accounts allow you to slowly put away money for when you need it most, whether unforeseen challenges occur, emergencies happen, or you're ready to make a large, financial decision. Here’s everything you need to know about the importance of having an emergency savings account, and how much emergency funds are necessary to help you with any future possibilities.
Emergency Savings: The Basics
It is well understood that the average American either lacks the necessary funds in their personal savings or may not have any at all. But with emergencies and financial surprises happening every day, the lack of any emergency funds can be devastating.
Why Are Emergency Funds Crucial?
Nearly half of the country has less than $1,000 in their savings account at any given time. When emergencies occur, or unexpected expenses come up, they can wreak havoc on your finances and your life. Adding money over time to an emergency savings account allows you to safely save money without causing a burden, which accrues interest over time, and provides you with a safety net for any unexpected need.
In addition to providing financial support in the event of an emergency, the savings account can also be used for future purchases and changes of life, like buying a home or car, supporting yourself during retirement, and more.
Who Could Benefit the Most from Emergency Funds?
Every adult can benefit from having an emergency savings account. Life happens to each and every one of us and preparedness can help alleviate the stress of a variety of things. Older individuals can benefit from an emergency savings account when retirement comes, health problems arise or moving becomes necessary. Younger people can use emergency funds for car problems, back up in case of job-loss, paying for school or college, saving for the future, and more. And families can always use back up for school expenses, medical bills, home problems, a new car, as well as all of the other unexpected occurrences that arise for many families.
Setting Up Your Own Emergency Savings
You may not have a savings account at all or may be unsure of what you may need for emergencies, but you're alone. While everyone's situation and personal expenses vary, unfortunately, most Americans do not have access to the proper funds.
What Factors Should Be Considered When Adding to Your Emergency Funds?
Your emergency savings account should reflect your current lifestyle, as well as the changes you see for yourself and your family in the future. For example, homeowners may consider putting more into savings than renters. Another factor to consider is the number of people your savings will provide support for. Single people living on their own may not need as much in their savings as people with spouses and/or children. Current, personal situations should always be taken into account as well, such as medical problems, college expenses, future goals, etc.
How Much Money Should Be in Your Emergency Savings Account?
It is important to always consider what the sufficient amount of funds is based on your personal situation. Though every individual is different, and you may even have personal goals of your own, there are a few guidelines to help you gage the proper amount for your emergency savings account.
It is recommended that at least 3 months of living expenses are stored away into an emergency account for those who may be single, rent instead of own, have minimal expenses or bills, and do not have any children or dependents to care for. The most commonly-recommended emergency account would have at least 6 months of living expenses in it, this amount is more strongly recommended to people across the country.
People with spouses, children, or other people to care for in the home, homeowners, people with average-substantial expenses or bills, those with medical considerations, or people looking forward to retirement should strive for 6 months of living expenses in an emergency fund. Some emergency savings can be recommended to be filled with up to one year of your living expenses, in certain situations.
As experts in helping you figure out all of your accounts including your emergency savings account, Lincoln Savings Bank is here for all of your banking needs! Visit one of our locations to learn more about how we can help you start your own savings account and achieve your financial dreams!