Having an emergency fund for unplanned expenses like medical bills or job loss can bring peace of mind, yet 58% of Americans don’t have an emergency fund separate from their regular savings, leaving them financially vulnerable. It’s partially why we recently updated EVERFI Achieve, so financial institutions can help their banking customers understand the value of building a backup savings account for emergency expenses. In this blog, we’ll explain how emergency funds work, how much you should ideally save, and how to build backup savings to give you financial confidence and stability. 

How Emergency Funds Work

Emergency funds act as a financial buffer for unanticipated expenses, keeping you from dipping into regular savings or taking on debt. These funds are set aside strictly for emergencies, and they’re ideally kept in an easily accessible account separate from your day-to-day finances. This type of fund is vital in protecting your financial stability; by covering expenses that arise unexpectedly, you won’t need to disrupt your long-term savings or investments. 

How Much Should You Save? 

A common recommendation is to save three to six months’ worth of living expenses, but individual needs vary based on lifestyle and financial obligations. The updated Achieve Emergency Savings Learning Pathway includes an Emergency Fund Tool, which helps consumers see what amount they need in emergency funds and how long it might take to save that amount. Additionally, an Investment Growth Calculatorhelps users see how their money can grow when invested in stocks, mutual funds, or other investments. 

Appropriate Uses for Emergency Savings 

Emergency savings should be reserved for unplanned life events that disrupt normal finances. Typical examples include: 

• Natural Disasters: Travel and lodging expenses related to natural disasters like hurricanes, flooding, and tornadoes. 

• Job Loss: Covering essential expenses during a job search 

• Medical Emergencies: Managing costs related to unforeseen medical bills 

• Urgent Home Repairs: Fixing critical issues like plumbing or heating failures 

• Car Repairs: Addressing major repairs necessary for work or family travel 

In short, emergency savings should be spent on essential, unexpected expenses that cannot be delayed. 

What Not to Spend Emergency Savings On 

To protect your emergency fund, avoid using it for non-essentials or planned costs, such as: 

• Vacations: Leisure expenses should be covered by a separate savings account 

• Non-Essential Purchases: Upgrading gadgets or shopping splurges 

• Debt Repayment: Unless facing an emergency, it’s better to use other funds for debt repayment 

Keeping your emergency fund solely for true emergencies preserves its purpose as a financial safety net. 

Does Everyone Need an Emergency Fund? 

Yes, everyone benefits from having an emergency fund, regardless of income level. Those who feel they can’t save enough should start small—even a modest emergency fund is better than none. Consistently adding small amounts can gradually build this safety net, which can be life-changing during a crisis. 

Where to Keep Your Emergency Fund 

An ideal emergency fund is in a high-yield savings account. These accounts offer liquidity, allowing you to access funds quickly if needed, and earn interest to help your money grow. Prioritize accounts with minimal fees and easy accessibility. 

Five Steps to Start Building an Emergency Fund 

1. Assess Your Expenses: Calculate your monthly expenses to understand how much you’ll need. 

1. Set a Savings Goal: Based on your expenses, determine your initial goal—whether that’s one month of expenses or a full six months. 

1. Open a Dedicated Account: Choose a separate savings account specifically for emergencies, ideally one that offers interest. 

1. Automate Contributions: Set up automatic transfers to build your fund consistently. 

1. Monitor Progress and Adjust as Needed: Regularly review and adjust your contributions based on life changes or new financial goals. 

Achieve’s Emergency Savings Learner Pathway offers customers a step-by-step guide to building an emergency savings plan and learning how to save money through savings accounts. The Emergency Fund Tool helps users calculate a target based on their unique budget. This personalized approach simplifies goal setting and makes financial planning more attainable. 

How EVERFI’s Achieve Platform Can Help 

EVERFI’s Achieve platform offers a powerful pathway to building financial resilience. With tools tailored to each user’s unique situation, Achieve empowers users to take control of their financial future. Financial institutions can use EVERFI Achieve to foster trust and loyalty, positioning themselves as essential partners in their customers’ financial journeys. Take the next step and explore how Achieve can transform your customer’s financial wellness.