Guidelines from Your Michigan Bank
Rainy days arrive in everyone's life, and they're usually unexpected. Maybe your rainy day is a flat tire on your vehicle that makes you late for work. Or your child falls during a bicycle ride and now has a chin that needs a stitch or two. Sometimes rainy days are like thunderstorms with lightning that zaps your air conditioner, leaves your basement flooded, or your roof leaking.
Preparing for financial emergencies may seem challenging. You wonder, "How much money should I save? Where should I keep the money? And how will I find room in my budget for the additional expense?" Banks in Michigan can help you create a framework for saving the funds you need to avoid additional stress when emergencies occur.
How Much to Save for Emergencies?
Although the unpredictability of emergencies makes a savings goal look like a moving target, community banks in Michigan suggest looking at your financial history. Review the amount you spent in the last year or two on unexpected purchases to calculate a savings starting point.
- Did you have to replace a broken cell phone?
- What did you pay for car repairs (excluding routine maintenance)?
- Did you have medical expenses not covered by insurance?
- If you’re a homeowner, did you have to replace any appliances?
- Did you have to call in professionals to remove a diseased tree?
If last year didn't have any rainy financial days, set a minimum goal to cover at least 1 significant expense. The average spend for a new smartphone is about $600. A single car repair typically costs between $500 and $600. Emergency room visits can reach $3,000 without insurance, and you may invest about $2,200 to buy a new stove or refrigerator.
- Setting aside $1,200 could provide the funds to cover one or two small emergencies.
- Or you can strive to save $3,000 or more for the more expensive outlays.
Another approach that Michigan banks recommend is saving enough to cover between 3 and 6 months of your total household expenses. Having a larger buffer helps protect you from big storms like losing a job or dealing with a major medical issue.
Which Accounts are Ideal for Emergency Savings Funds?
When emergencies occur, you’ll need quick access to your money. A personal savings account from Level One Bank has a low opening balance and earns interest as you save. With online banking, you can quickly transfer funds from your savings to a checking account to pay for the unexpected.
If you plan to save $2,000 or more, many banks would suggest opening a money market savings account. You’ll typically receive a higher rate of return than a regular savings account while still having the ability to withdraw money at any time for emergency expenses.
How to Budget for an Emergency Savings Fund?
Think of your emergency savings fund as a regular expense like a utility bill and then determine your fund's monthly 'cost.' For example, if you target $2,400 for your emergency savings, you'll need to save $200 each month or about $50 per week.
Folding the $50 weekly ‘emergency savings’ into your budget may require you to re-examine your current expenses and determine if you need to reduce spending in other areas. Here are a few tips on creating and managing a budget so you can take control of your money and have shelter from the storms when they arrive.
For more information about savings accounts for your emergency funds, contact the Level One Bank team or visit one of our local banking centers. We’re here to help you weather life’s storms.
"Your emergency fund is not an investment; it's insurance with one purpose - to protect you and your family." – Dave Ramsey, financial author