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An illustration of a rainbow-colored umbrella, a good thing to have handy in case of an emergency.
An illustration of a rainbow-colored umbrella, a good thing to have handy in case of an emergency.
An illustration of a rainbow-colored umbrella, a good thing to have handy in case of an emergency.

Bummer. But at least you're ready for an emergency.

First published August 18, 2016.
Updated August 2, 2019.

Emergency funds can ease your pain.

How to prepare for breakdowns, injuries, and other unexpected events.

It's a funny thing about emergencies. You don't know they're coming ... but you kind of do.

Illness. Injury. Damage to your home or car. Veterinary bills. Job loss. It's just a matter of time before a costly event comes your way. And while the numbers are improving, about 40 percent of adults remain unprepared for an emergency expense of $400 or more, according to a 2017 report by the Federal Reserve.

Why does it matter? Because financial security means more than paying your bills and saving for big purchases. It also means anticipating the unanticipated by building up a cash reserve to cover emergencies. So, when the transmission falls out of your car, you don't have to put the repair on your credit card, and start racking up interest charges.

Financial experts often recommend stashing enough in an emergency fund to cover three to six months' worth of living expenses.

"That's a lot of money, so set smaller milestones, starting with $500. Then a month's worth of living expenses. Then two months' worth, and so on," says Sherry Wallis, an STCU member and financial educator.

Financial experts recommend stashing enough in your emergency fund to cover three to six months’ worth of living expenses.

How do you get started?

Your financial institution can help you set up a separate savings account that you can use for your emergency fund - separate from your other checking and savings accounts.

Set up automatic transfers to the account every time you get paid. If money is tight, you may have to start with small contributions, and grow the size of those deposits over time. Remember, your ultimate goal is to maintain a fund that can cover three to six months of expenses.

"There will be setbacks when you have to pull out money for emergencies," Sherry says. "So be patient with yourself as you fill the account back up."

Still having trouble?

Sherry recommends these strategies to free up some cash.

  • Plug your spending leaks. Devote a couple of weeks to tracking what you spend, looking for unnecessary costs.
  • Scrutinize your monthly bills. You may decide to cancel or downgrade pricy phone plans, gym memberships, video-streaming services, and other plans you're not fully using.
  • Call your insurance agent or go online to search for better rates.
  • Call your financial institution and ask if you qualify for a lower credit card rate.
  • Find cheaper ways to treat yourself. A fancy meal at home, instead of a pricy restaurant. Trading babysitter service with other families. A bike ride instead of a movie.

What's an emergency?

An emergency account is meant to be there when you really, really need it for real emergencies. As a rule of thumb, we're talking unpleasant surprises of the medical, auto, home-repair nature. It can take some willpower not to dip into the account when opportunities arise for travel, great bargains, or "farewell tour" concert tickets.

Just remember you're creating something you'll be glad to have: a measure of protection against the emergencies that surprise us ... but really shouldn't.

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