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Building Your Emergency Fund While Saving for Retirement

Are you prepared to handle an unexpected expense without going into debt or asking friends and family for help? If the answer is no, you’re not alone. Many Americans say they “would have difficulty handling an emergency expense as small as $400,” according to the Federal Reserve’s sixth annual Survey of Household Economics and Decisionmaking.

More than 25% of Americans don’t have any form of retirement savings, and 68% aren’t budgeting to plan for their financial futures.

Saving for retirement is also a challenge for many. Only 36 percent of working adults believe their retirement savings is where it should be. And a stunning 25 percent don’t have any form of retirement savings.

As you can see, the majority of Americans could benefit from some advice on savings. As your Houston community bank, Central Bank is here to help you understand why saving is so important, how much you should have saved at every age and phase of life, and what your options are for choosing emergency savings and retirement accounts.

Our knowledgeable associates are always available to answer your questions and provide personalized advice. To discuss your personal savings goals, contact us or visit one of our 4 branches in Houston.

Are Emergency Funds and Savings the Same Thing?

Here’s how much to keep for a rainy day.

An emergency fund is one type of savings every person should have. The broader category of savings encompasses everything from your retirement account to a Certificate of Deposit and more.

What’s the difference between a person with an emergency fund and someone who has no savings? Nothing you can see on the surface, but the person with an emergency fund is likely less stressed about finances overall. They know that when the $400-plus emergency arises, they can cover it without breaking a sweat. Emergency savers also understand that there is no such thing as an unexpected expense. Rather, we all deal with “known unknowns.” If you own a car, it’s going to break down or need an expensive repair at some point. You just don’t know when, which is why you save.

Roughly 55 million Americans claim to have no emergency savings.

On the other hand, not having an emergency fund leaves you vulnerable to life’s uncertainties. Any time your car makes a strange sound, you cringe, hoping you won’t have to take it to the mechanic. We understand how daunting saving can feel when you’re juggling so many other demands on your paycheck, from groceries to housing and childcare. Just taking a small step toward starting an emergency fund can relieve some of that stress and leave you feeling more empowered. Here are some of the most frequently asked questions about emergency funds, followed by our recommendations.

How much do I need for an emergency fund?

As of 2017, Americans spent an average of $60,060 per year on basic expenses such as food, housing, transportation, healthcare, and more. The common wisdom on how much to set aside for emergencies is about 3-6 months’ worth of expenses. That would mean $15,000-$30,000 for the average American in the Bureau of Labor Statistics’ Consumer Expenditures 2017 report.

 Of course, plenty of people make less than that annually. Even for people who make the average before-tax income of $73,573 or more, saving tens of thousands of dollars for an emergency or potential job loss may seem like too much. Set a smaller, more manageable goal such as $500. Once you reach that goal, try to save another $500. When you break a larger goal into small, concrete steps, it’s easier to stick with it. As you see yourself making progress, you’ll feel inspired to keep going. 

Where should I keep my emergency fund?

It’s best to keep your emergency savings in an interest-bearing deposit account, so it will be easily accessible when you need it. For example, Central Bank offers an Individual Savings Account with a low minimum balance requirement. You can link your checking and savings accounts to set up automatic transfers and make withdrawals as needed. Put your savings on autopilot by setting up a recurring transfer on your payday.

Start growing your nest egg with a partner you can trust – one who has been serving their community for over 50 years.

When should you use your emergency fund?

It’s best to establish guidelines for using your emergency fund at the beginning. This will make it easier to avoid tapping your savings account just because you want to make a purchase you don’t have the funds for in your checking. Here are the top 5 categories for unexpected expenses:

Housing

Homeowners face unexpected expenses all the time, but even renters should prepare for emergencies. Yes, you should definitely have renter’s insurance to protect against the loss or damage of property. But you should also be ready to put down three months of rent on a new place if your landlord decides to sell the property or to not renew your lease.

Transportation

As we mentioned above, cars break down and need repairs. So unless you ride a bike or take public transit to work, you’ll always want to save for car repairs and even a deposit on a new car, when the time comes.

Food

Remember the news stories about furloughed government workers visiting food pantries? Be prepared to cover your monthly grocery expenses in the event that you lose your job or experience a temporary disruption to your income

Healthcare and Insurance

This can be another big source of unexpected expenses. If you have a health emergency or even a scheduled procedure, you will probably receive medical bills afterward for the portion not covered by your insurance plan. And if you find yourself out of work, you’ll need to pay for your own health insurance policy until you find a new job.

Utilities

Utility bills tend to fluctuate by the seasons. Here in Houston, hot summers lead to high electric bills for air conditioning. Homeowners may also need to replace their furnace or update their house’s wiring.

Central Bank is Your Local Partner in Savings

Central Bank has been helping individuals and families save for retirement since 1956. We offer personalized banking solutions for all of your financial needs. Visit our Personal Savings page to learn more about our account offerings: Student Savings for the children in your life, Individual Savings Accounts, CDARS, and Insured Cash Sweep. You can also contact us via phone or visit one of our 4 locations in downtown and greater Houston.

Start building your emergency fund today – Get started at Central Bank!