Articles

How to Build an Emergency Fund

There are few things that can derail your financial progress faster than an emergency. Your partner gets furloughed at work. Your car goes kaput. Or your child takes a header off the sofa and breaks an arm. Suddenly, you’re looking at a pile of unexpected bills, any one of which could impact your ability to reach important financial goals.

What about you?
Many workers are unprepared for short-term cash needs, according to a recent survey.*

Source: PwC.*

Enter the emergency fund.
An emergency or “rainy-day” fund is the money you sock away for unplanned events. Those savings can help you avoid having to take on high-interest credit card or other debt or possibly paying taxes and penalties on an early withdrawal from your retirement savings plan should a financial surprise hit. To build an emergency fund and still save for retirement, start by asking yourself these three questions:

1. How much do I need?
   Setting aside enough money to cover three to six months of expenses in a rainy-day fund is a typical recommendation. However, the amount that’s right for you should be based on your own essential expenses, such as rent/mortgage, insurance, utilities and groceries, among others. For example, if you’re single and living at home, you may need less than if you’re married with kids and have a mortgage to cover each month.
2. How do I build it?
   Decide how much you can set aside each week, month or pay period. If you’re early in your career or money is tight, pick an amount that you can put away on a regular basis. Then, set up recurring transfers from your paycheck (if your employer permits it) or your checking account to a savings account specifically for your emergency fund. To boost your emergency savings, consider adding any extra cash that you may have at the end of the month, after you’ve contributed to your employer-sponsored retirement plan and paid your bills.
3. When should I use my emergency fund?
   Set some guidelines for what constitutes an emergency or unplanned expense, and then don’t feel bad about using that money should you need it. Just be sure to continue adding to your account so it is replenished for whatever comes next.

To learn more about saving for a more financially secure future, contact your local Mutual of America representative today.
*PwC’s9th annual Employee Financial Wellness Survey, PwC US, 2020.

Donna Beeson
Account Representative
Field Consulting Services
7733 Forsyth Blvd, Suite 625
St. Louis, MO 63105
w: 314-721-3123 | mutualofamerica.com