Banking: Emergency Funds

EMERGENCY FUNDS

words courtesy Arvest Bank image rawf8/Shutterstock

Life throws us a curveball every now and then – and it’s often costly – whether it’s a broken air conditioner, an unexpected medical expense or losing your job. That’s why it’s crucial to create an emergency fund. Do South® reached out to Arvest Bank for tips on where to begin and how much we need.

DS: HOW DO WE KNOW HOW MUCH MONEY WE NEED IN AN EMERGENCY FUND? Arvest: You never know what that emergency will be, how big it will be or how long it will last, so it’s recommended that you save enough money to cover at least seven months of expenses. This can take time to build, so it’s important to begin saving as early as possible, even if your initial contributions are small.

Set goals along the way. Determine what percentage of your check you can put back, then have it automatically withdrawn and placed into your emergency fund.

DS: SO, IT’S LIKE A SAVINGS ACCOUNT, BUT FOR EMERGENCIES ONLY! IS IT ALSO A GOOD IDEA TO DIVERSIFY? Arvest: That’s a personal preference. Some like to keep everything in a savings account, while some prefer to earn money on their emergency fund. In that case, you might keep a third of your cash in a savings account and place some in a money market account that allows withdrawals at a specific minimum level, or purchase short-term CDs with three- or six-month terms so you earn interest. It’s important to remember that your emergency fund needs to be accessible when your emergency happens. If you elect to go with a savings account, don’t get a debit card or checks associated with the account. This will help you resist borrowing from the account.

DS: OUR FINANCES CAN CHANGE FOR THE BETTER AND FOR THE WORSE, SO HOW SHOULD THAT AFFECT OUR EMERGENCY FUND? Arvest: Before you start saving, you need to budget so you know how much money you can realistically put back without neglecting your monthly and annual bills. When you have a financial setback, try to continue building your emergency fund, but cut back elsewhere. For example, try to avoid eating out, and consider cancelling memberships or subscriptions.

When you have extra money, add it to your emergency fund. This may be in the form of a pay raise, a tax refund, the additional money you have after paying off a credit card. That extra money you can deposit may be short-lived, but it’s worth investing while you have it.

DS: WHAT ARE SOME OTHER AREAS WHERE WE COULD FIND SAVINGS TO INCREASE THE AMOUNT WE DEPOSIT INTO OUR EMERGENCY FUNDS? Arvest: Evaluate where you spend excessively such as eating out, entertainment, big purchases, etc. You can also: • Request a rate reduction on your credit card • Shop for better car insurance or homeowner insurance • Assess luxuries such as cable TV or your mobile phone plan to see if you’re subscribing to more than you need • Shop with a grocery list so you don’t “impulse buy”