6 ways to jump-start your emergency fund

Before the pandemic, most Americans were unaware of how a new virus would soon impact their finances. After all, the unemployment rate was 3.6% — one of the lowest since World War II. But in just four months, as businesses shuttered and Americans adapted to life in a pandemic, that number rose to 14.7%.

While things have mostly returned to normal, including the unemployment rate, the lessons learned from this period continue to be in our minds. The main lesson many learned is the importance of an emergency fund.

What is an emergency fund?

An emergency fund is a savings account specifically for life's curveballs.

COVID-19 is just one example. Think about the deductible you'd have to pay if you got into a car accident, the payment you'd owe for an unexpected health care expense, or, as many of us recently experienced, a sudden pay decrease or loss of income.

An emergency fund isn't meant for big purchases or your dream vacation. It's not intended to cover overspending or a celebratory dinner out.

All those things are important, and you're allowed to have fun. But it's not the purpose of an emergency fund.

How much should you set aside in an emergency fund?

That depends on your bills and your life stage. The goal is to save 3 to 6 months of your necessary monthly living expenses.

Remember that it's much cheaper, not to mention much less stressful, to borrow from yourself at 0% interest than it is to borrow from a lender at 10%, 15% or 25%. That's why having an emergency fund should be a top priority, even before paying off debt.

If you don't have money in savings and have an unexpected expense, you'll probably have to resort to a credit card. And that can mean a high interest rate.

How do you build an emergency fund?

If you're feeling burdened by financial pressures and saving for an emergency fund seems daunting, here's one piece of advice: Keep it simple.

There's no one-size-fits-all strategy when it comes to saving. But there are tried-and-true methods that work if you're committed to investing in yourself. Consider these possibilities:

• Review your spending and find ways to cut back. Small tweaks, like packing your lunch a few times a week or re-evaluating your cable plan, can mean significant savings over time.
• Find a side job. Extra income might be exactly what's needed to help you save an emergency fund. This one's especially important when cutting back on expenses isn't enough.
• Take a 52-week savings challenge. The premise is simple:
  

1. Save $1 this week.
2. Save $2 next week.
3. Save $3 in three weeks.
4. Continue adding $1 every week for 52 weeks.
5. A year from now, relish over your $1,378 savings account.

• Sign up for our Text Savings tool. Every few days, the system looks at your checking account to see if $1 to $9 can be transferred into your USAA Bank savings account. You'll get a daily text message with your checking account balance, and if your account is too low, the transfer won't go through. If you think you just can't save, this might be an interesting solution to try.
• Schedule a monthly transfer from your checking account to your savings account. This is the perfect solution if you look at your budget and know how much you can save. Just set it and forget it.
• Split your payroll deposit. Ask your employer if you can set up a portion of your paycheck to go to your savings account. That way you're guaranteed to save it, and you'll likely never miss it.
  
  

Regardless of which method works for you, the important thing is to stay the course.

Life happens. But if you get off track, don't throw in the towel. Instead, focus on how much you were able to save. Then get back at it.

Where do you keep your emergency fund?

For goals like retirement, it may make sense to invest your money, so you can earn higher returns and manage your risk.

But when setting up your emergency fund, remember those funds are intended for handling the unexpected. The goal isn't to make money on the funds. The goal is to have money you can easily access at a moment's notice.

When considering where to put your emergency fund money, weigh the following pros and cons:

• Can you withdraw your money immediately, known as liquidity, if you need to?
• Are there any fees or limitations to accessing your money?
• Could you lose some of your principal balance if you make a withdrawal?
• In many cases, what's preferred is an FDIC-insured savings account. That way, you can get to your money easier with no stock market risk.
  
  

Start your emergency fund today.

As a financial planner, I've witnessed firsthand how unexpected financial blows can affect members' hopes and dreams.

None of us, no matter our job, is immune to financial impacts. We've seen government shutdowns impact military members and federal employees, which we never would have expected. During the COVID pandemic, we saw major corporations close their doors, and small businesses that once were thriving fail.

If there's a silver lining from the events of the past few years, it's the reminder to be prepared.