Life can be unpredictable, which is why many people make the decision to set money aside in an emergency fund, just in case. How much of an emergency fund you may need depends on many factors, such as your income, the size of your family, or the kind of property you own. Fortunately, there are several ways to save and build your emergency fund. Continue reading to learn more about deciding how much you need to save and best practices for saving.

What Is an Emergency Fund?

An emergency savings fund is money set aside for unexpected expenses that are likely to be more than you can afford to pay up front. They can also be used for everyday expenses, such as rent, utilities, or groceries if you find yourself without a job or otherwise unable to work. For example, if your car breaks down and you need to pay for repairs or other expenses, you may not have those funds readily available if you don’t have emergency savings. An emergency fund gives you peace of mind because you won’t need to worry about the financial aspect of recovering from an unexpected cost.

When Should You Start Saving?

There is no wrong time to start saving for future emergencies. Parents especially benefit from having emergency savings for the little things in life that can happen when raising a family. Young, single adults or couples also benefit from emergency funds because unexpected costs can take you by surprise when you’re getting started. Having funds available in a savings account takes some of the pressure off when you’re still trying to get your financial footing. There is never a wrong time to start a savings account.

How Much Do You Need for an Emergency?

The amount you should aim to save in your emergency fund depends on what you can afford. A lot of people believe they can’t afford to save, but there is no amount too small to set aside in your emergency fund. Even just $20 a month over the course of a year can amount to $240 or more, depending on the kind of savings account you open. The average emergency expense can range from something as low as $500, like replacing a flat tire or a broken window, to expenses in a higher range of the thousands, like an ambulance ride, broken water line, or replacing your income for a short time.

Look at your budget and see where you can cut back to set money aside for emergencies. Consider how much health insurance coverage you have versus how much you would need in an emergency. If you’re a homeowner, look at the cost of replacing appliances or repairing an HVAC unit. With these amounts in mind, you’ll be better prepared to make an emergency savings goal that reflects not only your income but also the costs of maintaining your home, your health, and the security of your family.

How Will You Know When to Use It?

Knowing when the time is right to tap into your emergency fund is dependent on a few factors. If you have funds available to establish a payment plan or pay for unexpected expenses without compromising your budget, you may not need to tap into your emergency savings account. If, however, the unexpected expense exceeds what you can afford or will cause significant financial disruption, this may be the time to access your funds. For example, if a limb falls on your roof after a large storm, your homeowner’s insurance may cover much of the repair costs, but you’ll likely have to meet a deductible before your insurance coverage takes effect.

Other possible scenarios might include losing your job, being unable to work when you or a loved one are injured or sick, or sudden travel plans to visit a relative or family member in need. Having an emergency fund available for interim expenses or the cost of a plane ticket or hotel room can make it easier to take care of the things that need to be done. When the sudden cost is more than you can reasonably absorb, this is the time to tap into your emergency savings fund.

Where Should You Put Your Emergency Funds?

Financial institutions offer a variety of products and services for members or customers interested in building an emergency fund. Traditional savings accounts are ideal for individuals just getting started, as most basic savings accounts don’t require a minimum balance or deposit to begin saving. Some financial institutions even offer “rainy day” savings accounts specifically for emergencies.

If you’re looking to earn dividends on your savings and you’re able to meet the minimum deposit and minimum balance requirement, a money market account or high-yield savings account may be the right fit for you. These types of accounts can also help your savings grow more quickly since the money you deposit will accrue interest.

For individuals concerned about saving for health emergencies, a health savings account, or HSA, is an ideal savings option if you’re enrolled in a high-deductible, high-premium (HDHP) health insurance plan. These accounts allow you to set aside funds every paycheck or every month for future medical expenses, and the funds in these accounts are tax-free.

When you’re ready to start saving for the unexpected, seek out a financial institution or organization that offers savings accounts and products that reflect your needs, and provides savings guidance and support, regardless of where you’re at on your savings journey.

At Mid-Hudson Valley Federal Credit Union, members have access to a variety of savings accounts, including money markets, health savings accounts, retirement savings accounts, and more. MHV is also insured by the National Credit Union Association (NCUA), ensuring funds are protected and always available.

How much you need in your emergency fund is entirely up to you, but remember, it’s never too late to start saving, and no amount is too small.