Why Your Emergency Fund is Like a Life Preserver for Your Budget

Pop Quiz: If your car broke down, and it cost $500 to fix, how would you pay for it?

  • Charge it to your credit card
  • Borrow the money
  • Use your emergency fund

If you answered ‘C’, you’re part of the 4 in 10 Americans saving in an emergency fund, according to a recent Bankrate poll. That leaves about 60% of us turning to credit cards or borrowing to pay for the unexpected. Why should you have an emergency fund? Think of it like a life preserver for your budget. An emergency fund protects your budget from unexpected expenses. It can help you avoid going into debt. Here is what you need to know about building yours.

couple looking over budget, 41% of Americans use a budget. Do you?

What Is an Emergency Fund?

An emergency fund is money for those expenses that pop up without warning. It may be cash in a coffee can or in a bank account separate from your regular accounts. Wherever you choose to save, the important thing is that you won’t be tempted to use the fund for optional expenses, like a vacation or a new cell phone. But you could get to it quickly if your car needs repair, if you get hurt or if your washing machine breaks.

Just like budgeting can help you worry less, an emergency fund can also reduce stress when you have an unexpected expense. No more scrambling to figure out how you’re going to pay for it or charging it to your credit card. You can breathe a sigh of relief knowing your emergency fund is there just for this sort of thing.

How Much Do I Need?

Experts recommend saving 3-6 months’ worth of expenses in your emergency fund. Look at your average total monthly expenses. Then multiply that amount by 3-6 months to see how much you need. After that, set a goal for when you want to reach that amount.

When you’re starting from scratch, or if you don’t have a lot of wiggle room in your budget, sometimes it’s easiest to break your savings goal into small, bite-size amounts. Start by saving $50. When you reach that goal, aim to save $250, then move up to $500, and so on. Be sure to review your emergency fund balance each year to make sure you’re saving enough. Once you’ve hit your goal, keep pace by rolling the money you were saving toward your debts or your retirement savings.

KPERS Benefit Brief

Want to Afford Retirement? Start Saving Today. KPERS and Social Security won’t be enough. You need to save on your own, too. One of the easiest ways to save is through an employer plan like a 457(b) deferred compensation plan or a 403(b) annuity. Check with your employer about options where you work. The State of Kansas and some local employers offer KPERS 457, a voluntary deferred compensation plan. Find out how you can get started with KPERS 457.

See if your employer offers KPERS 457: State | Local

KPERS Investment Snapshot

Target Return = 7.75%

Total Assets = $19.3 Billion

graph showing KPERS return overtime. *average annualized total returns as of November 30, 2017