Emergency Fund Essentials

Four Ideas to Help Build an Emergency Fund Fast

Did you know that nearly 25% of U.S. adults have no emergency savings and only 25% have a rainy day fund — but not enough to cover even three months' worth of living expenses?

That means that around 75% of people are one emergency away from a real financial crisis.

Many claim that daily expenses and debt keep them from establishing an emergency fund. Yet, one of the greatest debt prevention tools is, in fact, an emergency fund. Having the money in place when there's an emergency can save you from racking up further debt on a credit card.

So let's make sure you are ready for a rainy day.

Your Savings Rule of Thumb

While it's true that establishing an emergency fund is a good plan for anyone, how much you need to save will be based on your unique situation.

"It depends on many different factors," says Angie McClain, GuideStone^® personal financial advisor and CERTIFIED FINANCIAL PLANNER^™ professional, "but the most common response you'll get from financial planners is to save three to six months of expenses."

For example, in the event of a job loss, two-income households may be able to function on three months of savings, while one-income households and those who are self-employed may need to save closer to six months of income, McClain notes.

Your Emergency Fund Is Within Reach

You may find the thought of saving an emergency fund can be overwhelming. Establishing a plan to help free up cash and expedite the process can make a big difference.

Below are four ways to help you leverage your current financial plan to build an emergency fund.

Start small — work toward $1,000. It is essential to have a small amount of money in the bank while you're trying to save your larger emergency fund. This money will help keep you out of debt when you hit inevitable bumps along the road (e.g., an appliance breaks down or you have an unexpected visit to the doctor).
Renegotiate credit card rates. Ideally, you should aim to pay off debt prior to growing your savings. To get a head start on building an emergency fund, try negotiating for a lower interest rate on your credit cards. Lowering your rate allows you to expedite your efforts to eliminate debt.
Raise your car insurance deductible. Once your savings have reached a comfortable level to help you in a minor emergency, like replacing tires on your vehicle, ask your car insurance carrier for a higher deductible, which may lower your car insurance payment. You can add the money you save each month to your emergency fund.
Stimulate your savings over time. To build the amount of savings that would help you in a major emergency, like losing your job, it's a good idea to do more than simply save your money — invest it. The idea is to invest your "job replacement" emergency fund in a safe place — separate from the rest of your resources — so it can earn interest while you save it.

GuideStone is here to help. Check out more resources to learn helpful tips about financial wellness and budgeting.