Strategies for Building Your Emergency Fund

You know having an emergency fund is important, but how much money should be in it and how can you increase your savings? We've compiled tips from choosing the right account to analyzing your ongoing bills to help you get started below.

Choose the Right Account

First, you need to decide where to put your money to maximize your savings. Your emergency fund should be cash that's easily accessible and that you won't be penalized for using.

Because of these needs, many people use a PSECU money market to house their emergency fund. As long as your balance is above $500, our money market allows you to earn more interest than you would with any other savings share, and you can easily access your funds if you need them with no penalties.

Whether you choose to open a money market with us or at a different financial institution, here are some features to look for:

• No monthly fees
• Dividends paid regularly
• Anytime, anywhere accessibility
• Low minimum balance requirement for higher dividends 

Calculate Your Needs 

Experts generally recommend that you aim to put at least six months’ worth of living expenses in your emergency fund. It may take time to get to that point, but small contributions every week or month can go a long way toward reaching that goal.

To determine how much you should save, add up your monthly expenses, including the following:

• Mortgage or rent payments
• Utility payments, including gas, water, trash, sewer, and electric
• Monthly bills, such as your cell phone bill and Internet
• Insurance payments, including auto, health, and life
• Transportation costs, such as gas and public transportation
• Groceries
• Other expenses, including medications, monthly gym memberships, subscriptions to audio or video streaming services, and other recurring costs

You’ll also need to include any monthly debt payments in your calculation, such as student loan payments or credit card debt to make sure you don't default on any of your financial responsibilities during a time of crisis. 

Make a Plan to Fund Your Emergency Savings

Once you determine how much you need to have six months' worth of living expenses in your emergency fund, put a plan in place to reach that goal.

First, consider your ability to put money aside each month toward that goal without changing your current lifestyle. If you find yourself with some extra room in your budget, make a commitment to putting money aside each month. To help remind yourself of your goal, add your emergency fund to a list of "bills" you pay. Consider automating your savings so money automatically transfers to your emergency fund on a certain date each month.

If you're not able to put money in savings with your current income and expenses, look for ways to cut costs to free up extra cash for your emergency fund each month.

Cutting Costs is More Than Skipping Coffee

Whether you need to lower your expenses to have money to set aside in savings or you're looking for ways to save even more, there are likely ways you can cut your monthly spending to increase your savings power.

It's important to note that cutting costs is more than just skipping coffee at your favorite café each morning.

While small changes, like adjusting your thermostat, cutting down on meals out, and buying generic brands at the grocery store can help you save, there are other steps you can take to see larger savings and still be able to enjoy the occasional splurge.

• Refinance existing loans: When was the last time you shopped around for auto loan or mortgage rates? If it's been a while, it's possible that rates have dropped since you initially took out your loan. Refinancing to a lower rate can help lower your monthly payments in the short term and save you money on the loan in the long run. 

• Transfer high-interest debt: If you're carrying credit card debit with a high-APR, you may be able to lower your payments by using a Visa balance transfer to move your debt to a card with a lower APR. 

• Negotiate monthly bills: While it's not guaranteed, you may be able to lower your monthly bills, such as cell phone or Internet, if you call and ask. Find out what your current provider is willing to offer you and then compare it against other providers available in your area. Don't be afraid to switch companies if it'll result in significant savings. 

• Set aside windfalls: Whether it's a tax return refund or a bonus at work, resisting the urge to spend it all on a splurge can help pad your emergency fund.

To get started on your emergency fund today, check out our savings account options. And for more money management tips, read more tips and tools.