{"id":4708,"date":"2023-05-17T16:13:00","date_gmt":"2023-05-17T23:13:00","guid":{"rendered":"https:\/\/www.soundcu.com\/?p=4708"},"modified":"2025-05-28T11:33:51","modified_gmt":"2025-05-28T18:33:51","slug":"how-emergency-funds-work-in-practice","status":"publish","type":"post","link":"https:\/\/www.soundcu.com\/blog\/how-emergency-funds-work-in-practice\/","title":{"rendered":"How Emergency Funds Work In Practice"},"content":{"rendered":"
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How Emergency Funds Work In Practice<\/h2>\n

If you depleted your emergency fund in the last year or so, don\u2019t panic. We build up emergency funds so they\u2019re there for us when we need them. And if you\u2019ve never had an emergency fund, you absolutely need one to protect yourself if something unexpected happens. Because inevitably, it will.<\/p>\n

Here\u2019s what you need to know about the care and feeding of your oh-so-important emergency fund.<\/p>\n

How Much Money Is Enough?<\/strong><\/h2>\n

Plan on ultimately keeping three to six months\u2019 worth of living expenses in reserve.\u00a0 Dual income families can try for closer to three months of cushion (figuring one earner can back the other earner up in case of a job loss or illness) while one-income families should have closer to six months (because there isn\u2019t another earner to take over).<\/p>\n

And, if you\u2019re not close to that yet, don\u2019t panic. Recent research from the JP Morgan Chase Institute suggests you may not need that much. In analyzing 6 million customer accounts, they found that every 5.5 years, account holders experienced an income dip at the same time they had an expenditure spike \u2014 which forced them to tap into whatever emergency fund they had on hand. To weather these unfortunate events, people needed about six weeks\u2019 worth of take-home income.<\/p>\n

And remember, in an emergency situation, you won\u2019t be spending on extras \u2014\u00a0 rather just the essentials, like rent or a mortgage, food, insurance premiums and gas to get to and from work\u2026 That premium cable, salon visit or restaurant meal? Not so much.<\/p>\n

Where Do You Keep Your Emergency Fund Money?<\/strong><\/h2>\n

It\u2019s best to stash the money in a separate high-yield savings account<\/a> at your credit union, bank or other financial institution. Why? Because having money close by (but not too<\/em> close) helps prevent you from reaching for it in your everyday life. That way it\u2019ll be there if your car is in a fender bender or your high-deductible health insurance leaves you with an ER bill you can\u2019t swing. In this way, you can think of your emergency fund like insurance against credit card debt. If you have cash on hand, you can pay for unexpected expenses without going deeper into debt by using a credit card or taking out a high-interest personal loan<\/a>.<\/p>\n

A word about those high yield savings accounts: The variance between APY (annual percentage yield) offered from financial institution to financial institution can differ dramatically \u2014 the average interest rate on a plain vanilla bank savings account is still way under 1%, you can easily get four times that by shopping around<\/a>. And, thanks to the rising interest rate environment, the rates at credit unions (which tend to be competitive in these markets) are likely to keep on rising. When you\u2019re saving and earning interest that goes back into your account, the amount can compound quickly with a higher rate. That\u2019s a good thing.<\/p>\n

How Do You Build (Or Replenish) Your Emergency Stash? <\/strong><\/h2>\n

Here are a few ideas: Three times each year, on average, people experience an income spike. These tend to group around the end of the calendar year and the beginning of the next, and can be things like bonuses, extra hours for additional holiday shifts, and tax refunds. The key here is saving more during the times when we have additional money<\/a> coming in, which will allow us to hit \u201cpause\u201d on saving (or save less) when our income dips.<\/p>\n

Make use of months that contain a fifth Friday. Some 80% of families have a job that pays on a weekly or biweekly basis, and often on Fridays. Four months in the calendar year have five Fridays instead of four (which means you\u2019ll get three paychecks instead of two). Why not put a chunk of that third paycheck into savings?<\/p>\n

Do you get a hefty tax refund each year? If so, changing your withholding to be more in line with what you actually<\/em> owe Uncle Sam could pad your paycheck. Do yourself a favor and set up an automatic transfer of funds to go directly into your emergency account on the day your paycheck lands. That way you won\u2019t be tempted to spend it.<\/p>\n

And if you need a little hand holding where building more savings is concerned, we\u2019ve got you. We have partnered with\u00a0GreenPath Financial Wellness<\/a>\u00a0to provide members with access to one-on-one financial counseling, debt management services, and financial education tools.<\/p>\n

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It\u2019s best to stash the money in a separate high-yield savings account at your credit union, bank or other financial institution. Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":13,"featured_media":4709,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_searchwp_excluded":"","footnotes":""},"categories":[50],"tags":[],"class_list":["post-4708","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-life-finances"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/posts\/4708","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/comments?post=4708"}],"version-history":[{"count":1,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/posts\/4708\/revisions"}],"predecessor-version":[{"id":15473,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/posts\/4708\/revisions\/15473"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/media\/4709"}],"wp:attachment":[{"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/media?parent=4708"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/categories?post=4708"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.soundcu.com\/wp-json\/wp\/v2\/tags?post=4708"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}