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You keep a spare tire in your trunk and a fire extinguisher under your sink—but are you prepared in case of a financial emergency? If you’re anything like the average American, the answer could very well be “no.” According to a recent survey, 66 million Americans have no emergency savings of any kind, and that includes one-third of Gen Xers (those born between roughly 1965 and 1984).1 What’s worse, 60 percent of households experienced a financial setback in the past 12 months and were faced with unplanned expenses.2

Without savings in place, many turn to credit cards, personal loans or even early 401(k) withdrawals to cover unexpected expenses—but these are hardly sustainable safety nets. That’s why it’s so important to have separate savings accounts. The first is dedicated to true emergencies, such as medical bills or unplanned trips, and the other earmarked for anticipated (if unwelcome) expenses, such as home repairs or vet visits. 

Clear steps for getting started

First step? Make sure you set up a financial confidence account (FCA). Activate automatic deposits and shoot for an initial target of $1,000 and an eventual goal of three months of living expenses (what you need to pay all your bills).

Challenge: You can kick off the process by setting aside as little as $10, $20 or $30 every paycheck. The most important thing is to just start

“I have clients who don’t have anything saved [and] I always say, ‘Let’s start with one month’s rent or one month’s expenses and then we're looking to get to around three,’” explains Kristen Euretig, a Certified Financial Planner (CFP®) and founder of an organization that helps young women gain control of their finances. “It’s like anything with milestones—you have to break it up. 

Anticipate and plan for future expenses

But as you start building your FCA for emergencies, remember that worst-case-scenario situations—like losing your job—aren’t the only costs that could come along. If you can begin anticipating eventual expenses and dedicate an account for those needs, you could save yourself many financial woes in the future.

For example, if you’ve just bought a house, you’ll probably need to repair the roof or replace the water heater at some point, right? That’s a case of being cognizant of what to expect (which may happen earlier than you think). Or perhaps you’ve decided to adopt a furry friend—she’ll probably need to visit the vet at least a few times a year. Own a car? Chances are, a repair bill will be in your future.

Why not set up a savings account—entirely separate from your FCA—that’s dedicated to home and auto repairs? Or how about a Fido fund to cover shots and grooming? Just a few dollars every paycheck is a good start. By strategically thinking about the inevitable expenses that are in your future, you can significantly lessen the impact these dings will have on your wallet.

Challenge: Consider what expenses you’ll face in your future, and start to plan for them.

Once you start saving for both emergencies and the slightly more predictable expenses of life, you’ll be able to weather the financial storms with your savings lifejacket—and a lot more peace of mind.

3 Key Takeaways
  1. 66 million Americans have no emergency savings, and 60 percent of households had a financial setback in the past year.
  2. Shoot for an initial target of $1,000 in your FCA and an eventual goal of three months of living expenses.
  3. Save for expected expenses (new roof, car repairs) in a separate account from your FCA.

 

Challenge yourself

Every journey starts with a single step; your savings plan can begin with a single dollar. Struggling to get started? Keep reading to learn what comes next.

1 “66 million Americans have no emergency savings,” June 21, 2016, CNBC

2 “The Role of Emergency Savings in Family Financial Security,” October 2015, Pew Charitable Trusts

This content is educational in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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