Life is unpredictable, no matter how much we may wish we could control everything. The surprises in store for us can be good or bad, full of pain or joy, exciting or annoying. But there’s one type of surprise we should strive to prepare for as best we can: financial emergencies.
Learn more about what constitutes a financial emergency, the importance of planning for them, and tips for saving money so you’re prepared when one hits.
Types of Financial Emergencies
There may be moments in life where you’re unsure whether the situation you’re facing is a true emergency from a financial standpoint. It’s important to understand what does and does not constitute a financial emergency.
In general, financial emergencies are unexpected, impact your health or a loved one’s health, or impact your ability to earn income. In some cases, all three of these may be true. A financial emergency puts you at risk when it comes to your financial security.
Examples of financial emergencies include:
- Loss of job
- Medical emergencies
- Unexpected major car repairs/expenses
- Unexpected major home repairs/expenses
- Illness or death of family member, especially an income earner
In each of these cases, it’s clear how they could impact your family from a financial or health perspective. Learn more about financial emergencies.
Now, let’s take a look at a few situations that are not financial emergencies:
- Planning or attending a wedding
- Purchasing gifts
- Taking a vacation
- Buying a home
- Voluntarily remodeling your home
- Voluntarily purchasing a new car
None of these situations qualifies as a financial emergency, as they’re either not unexpected, don’t impact your health, or they don’t impact your ability to earn income.
Starting Your Emergency Fund
One of the best weapons against a financial emergency is an emergency fund. Or, as we like to call it, a “peace of mind” account. Emergency funds are an essential part of having a healthy financial life and being prepared for the unexpected.
If you don’t yet have an emergency fund, you’re not alone. A Bankrate study at the start of 2022 showed that more than half of Americans (56%) wouldn’t be able to cover an emergency expense of $1,000.
While the 44% of those who would be able to cover the emergency was the highest it had been in years, it shows there’s still plenty of work to do when it comes to sharing the importance of emergency funds.
Having an emergency fund can help keep your other financial goals on track even in the face of an unexpected expense. For example, let’s say your car breaks down and you need it to get to work -- or else you may lose your job. If you have an emergency fund, you can pay the necessary repair expenses without derailing your other financial goals.
If you don’t have an emergency fund, though, you may need to dip into another one of your accounts for the funds you need. If you withdraw from your retirement account, not only are you preventing that money from continuing to grow for your future. But you could also be faced with early withdrawal penalties.
Don’t have an emergency fund yet? It’s never too late to start one. Just putting a little bit of money aside for your new emergency fund can help you start growing your nest egg. And even if it’s not a lot, starting small is better than not starting at all. Then, consider contributing a certain amount to your fund each month. You’ll gain motivation, confidence, and peace of mind as you see that emergency fund grow.
Using a Savings Account as Your Emergency Fund
When setting up your new emergency fund, be sure to understand the right type of account to use. In most cases, a savings account is the best choice.
You may already be familiar with savings accounts. That’s because they’re exactly what they sound like: an account that lets you securely set your money aside for safekeeping. Plus, you can even earn interest by putting your money in a savings account.
Unlike checking accounts, savings accounts aren’t typically attached to payment methods such as debit cards or checkbooks. When you’re using your savings account for your emergency fund, this can be very useful -- while you have access to your money at any time, the funds aren’t linked to a card that you can swipe whenever you like.
Remember that the idea behind an emergency fund, or any savings account, is to touch your money as little as possible and allow your savings to grow. You can use the funds from your account when you need them, but you should do so sparingly.
An Academy Bank Savings account is a great place to start your new emergency fund.
Our savings accounts are designed to help you save for anything -- like emergency funds. Our savings account features include digital banking with account alerts, source of overdraft protection, and eligibility for our Saving Cents program.
Open a savings account with Academy Bank now: it only takes 10 minutes to apply.
Save More Often With Our Saving Cents Program
Speaking of Saving Cents… did you know that you can set up automatic savings? Saving money can be hard, especially when we often focus on life’s everyday expenses such as food, bills, and housing. It may feel difficult to set money aside in savings to help you reach your savings goals.
Academy Bank can make it easy with our Saving Cents program. Through Saving Cents, your purchases will be automatically rounded up to the nearest amount of your choosing. The extra dollars or cents saved are added to your savings. So you’re saving money without even thinking about it.
Here’s how it works:
- Choose - Choose how much you'd like to round up your debit card purchases from your checking account. Options range from the nearest $1 to $5 increment.
- Save - Every time you make a purchase, we’ll round it up. Each night all the extra change is transferred automatically from your checking account to your savings account.
- Track - We keep track of Saving Cents transfers and place that information right on your bank statement each month.
Academy Bank is Here To Help You Plan For the Future
When you’re ready to build up your emergency fund and plan for your future, Academy Bank is by your side. We offer a variety of savings accounts, as well as other products, to help you live your best financial life -- now, and in the future.