Building an emergency fund for unexpected home repairs, large medical bills, a job loss, or other significant purchases is essential to ensuring financial stability and peace of mind. However, you may feel uncertain of how to get started or if you even have any extra money to set aside.
We spoke with a few Fidelity Federal leadership team officers for advice on how much to save, what type of accounts to use and how to get started. Keep reading to view their best tips.
Building an Emergency Fund To Ensure Financial Security
An emergency fund can help you pay for unplanned expenses and lessen your risk of depending on high-interest credit cards or loans. Knowing you have backup funds can be invaluable and help reduce stress and anxiety about your financial security.
Here’s what Fidelity Federal Vice President of Lending Michael Piscioneri and Vice President of Retail and Marketing Jennifer Copley shared about emergency funds:
How much money do you recommend people save for an emergency fund?
Michael: The recommended amount is [enough to cover] four to six months of bills. Given the times, it is not easy. I would start with a month of payments and work from there. Create small goals to obtain one larger goal — small molehills instead of trying to scale the mountain.
Jennifer: I always recommend paying yourself first. You need to set an amount that works with your budget. Make it a monthly or each-pay type of bill. When times are tough, people still pay the mortgage, but you must also pay yourself. The amount needs to fit the financial situation. When pay changes, the amount for your savings must also reflect that.
What type of account(s) should individuals use to keep their emergency funds?
Michael: I like using a savings account for emergency funds. When you use money markets or CDs, there could be penalties or minimum balances required. When an emergency pops up, the last thing you want to worry about is penalties or minimum balances.
Jennifer: I believe an emergency fund should always be a savings account at a different financial institution than your checking account, making it intentionally harder to access. This removes the convenience of transferring money out of the account. It also helps you become disciplined enough to only use it if it is truly an emergency.
Explore savings account options at Fidelity Federal >>
What are a few of your best tips for someone who’s just getting started?
Michael: When I work with students on financial education, I always tell them to pay themselves first. The first step is understanding your budget and where your money is going. There are several apps for phones, Excel spreadsheets or old-fashioned pen and paper to track your finances.
Once we understand what we have left after everything is paid, we can create additional accounts. Most financial institutions will allow for additional accounts or sub-accounts for these items.
Then, I’d establish goals like deciding how much I need for emergencies. Do I want to travel? Am I looking to buy a house soon? Once you set the goals and accounts, determine the amount or amounts you will put into each account. Whether it’s $5 or $500, you must start somewhere.
Jennifer: When creating a monthly budget, include a line item for yourself. This should be an amount you are comfortable with and paid each time you get paid. It is also a good idea to create accounts for different financial goals that you set for yourself, including vacation, Christmas, or a home or car purchase. Your budget will also include these items, with a set amount for each account. You can always increase the amount when the opportunity arises!
How Can We Help You Start Your Emergency Fund?
Fidelity Federal offers savings accounts that are ideal for emergency funds. If you’re unsure which savings program is right for you, give us a call or stop in. We take the time to get to know you and discuss your goals and budget to determine which account will best meet your needs. Contact us today to get started!
