Emergency Funds: An inside look at how they work for us

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Emergency Funds: An inside look at how they work for us

Pop quiz time: If something unexpected happened in your life and you urgently needed $1,000, what would you do?

  1. I would use my rainy day fund to cover the expense.
  2. I would pay for it with my credit card.
  3. I would borrow money from friends or family.
  4. I would cut down spending in other areas to be able to pay for it.

Only 37% of Americans can confidently select A.

Even though we are armed with knowledge on how to save and are aware of technological advances that help with managing our finances, as a nation, we still struggle to build emergency funds to help get us through tough times. We asked three people from the HTFFFCU team about the feasibility, importance and their strategy when it comes to their own emergency funds.

Joe, Melinda and Pam; a records clerk, a financial services representative and our vice president of finance. One part time student and two full time employees. Very different people with different experiences, yet certain similarities are hard to miss. They all have emergency funds and they have all decided to share their savings stories with us.

An emergency fund? Say what?

Even though the idea of having an emergency fund may seem like common knowledge, out of the three interviewed only Pam was taught about the importance of savings. Her father made sure she knew how crucial it was to be prepared for life emergencies. Joe and Melinda weren’t that fortunate. They had to teach themselves.  Joe observed the daily struggled in his family home. Melinda learned about the importance of saving the hard way.

Starting an emergency fund.

Melinda, a financial services representative started her emergency fund in her late twenties. “There were times in my early adulthood that I was living paycheck to paycheck and I didn’t have any leftover money to save. These were hard times,” she admits. “As soon as I was in a position to start saving, I started a ‘rainy day’ fund and I keep adding to it every paycheck.”

Joe, a computer science student and part-time HTFFFCU records clerk, started his emergency fund at the age of 22. It was not a coincidence that he commenced his employment at the credit union exactly at the same time. “It’s ideal to start building your fund early,” explains Joe, “but you cannot do it until you start making money.” For almost two years now, Joe has been faithfully putting away small sums every time he receives a paycheck.

Pam, HTFFFCU’s vice president of finance, started her first rainy day fund when she was still a teenager. Soon, it was used to cover her college expenses. Pam’s second (and current) emergency account was opened when she was the same age as Joe, and not coincidentally, when she started her first job.

Using an emergency fund.

Since its inception, an emergency fund has helped Pam get through tough times without having to sacrifice her lifestyle. “I had a couple of expensive car repairs and had to replace my A/C unit a few years ago. The rainy day savings literally saved me at that time,” says Pam.

Melinda also had to use her emergency fund to cover various car related expenses. Although she occasionally uses a portion of her savings for pleasure. “It’s important to me to find the right balance in life between saving money and rewarding myself. Whenever I am happy with the balance in my emergency account, I am open to spending some money, on a trip for example,” says Melinda. “I’d never deplete this account for pleasure though. I would only empty it if needed, in an emergency. That’s what I opened it for.”

Managing an emergency fund.

Both Joe and Melinda keep adding any leftover money to their emergency funds even after their regular transfers have gone through. They agree that it’s important to save the extra money as opposed to spend it on unnecessary things. In addition to her regular transfers, Pam also adds to her emergency account. She has a different method though. Whenever she receives a pay increase or a bonus, she would add all or most of it to her savings account. That way she ensures that her fund is continually growing. Pam also periodically reviews her emergency account and if she’s happy with the balance, she withdraws a sum of money to invest it. “I need to have a fall back in life and that’s what my emergency fund is for,” says Pam. “But I also want to see my money making more money for me. That’s why I invest a portion of my emergency fund.”

Learning from experience.

If Pam could give her best advice to the readers, she would suggest to start small. “Even if you cannot put away much, put away something,” she says. “You will see that even $5 per month can make a difference when something unexpected occurs.”

“And don’t live beyond your means because this can easily turn into a spiral of debt,” adds Melinda.

“Saving for emergencies is hard,” sums up Joe. “It’s because you’re saving for an undefined purpose, a mysterious emergency that may never happen. But it gives me great peace of mind that should the unexpected happen, I am, prepared, at least to an extent.”

Participants in the discussion:

Joe is a part time records clerk and computer science student by day and an avid video games player by night.

Melinda, a financial services representative, handles delinquent credit cards, legal and repo accounts. When she’s not at work, she loves spending her time fishing and going on long road trips.

Pam, vice president of finance, oversees the credit union accounting and budgeting. She loves to spend her free time with family and friends.