According to an article in the New York Times titled The Dangerous State of Americans’ Savings, just a little over 50% of American households have less than one month of income available that could be used if absolutely necessary. This is where the Emergency Savings Account comes in to play. Most personal finance specialists suggest that a minimum of $1,000 be kept in a fund set aside for emergencies. Most of us have had emergencies happen at one time or another and if you aren’t prepared they can put you deeper in debt.
Right after my husband and I were married, we realized we needed a new set of tires for my car. At that time, the set cost around $400. Unfortunately, we only had $500 in our savings account, but at least it covered the cost of the tires. If we had not had the $500, we would have had to make payments or delay the purchase of the tires. Neither would have been a good option for us.
What if your heating/air conditioning unit goes out and you don’t have an emergency savings account? Over the past few weeks where we live, the temperature has been in the 90s with over 90% humidity. Imagine if your air conditioner went out in this type of weather! Maybe you need a new engine for your car or your water pipes burst. How will you pay for these emergency needs? Again this is why you need an Emergency Savings Account.
People have asked me if they need to keep the Emergency Savings separate from their other savings accounts. In my experience, it is best to have a separate account. We have an account I call our Emergency Savings Account at a local bank just for true emergencies, not for when we decide to go on a quick vacation. Remember, this account is for that completely unexpected emergency! Even though we won’t make very much interest on leaving it in a basic savings account, the peace of mind that comes from having the funds local is worth it. I know the money is there, but I wouldn’t use it unless it is absolutely necessary.