The importance of having an emergency fund
Along with life's wonderful moments, we occasionally face unexpected events that can take a hard hit on our bank accounts.
Whether it’s a sudden job loss, a car accident, or a broken refrigerator, the unexpected has the potential to leave you in a tough financial spot. Even though we all may know we should be financially prepared, the fact is that 22% of Americans today haven’t saved a cent for emergencies.1 We'll explain why it's so important to have an emergency fund to help you get started saving for the unkown.
1. Why is an emergency fund important?
Being financially prepared for emergency situations, large or small, can help reduce anxiety and prevent stress when times get tough. An emergency fund is simply a stash of money that’s been set aside to cover the surprise financial costs that life will inevitably throw your way.
2. How much should you have saved in an emergency fund?
The general consensus is that you should have enough money to cover three to six months of expenses sitting in your emergency fund. The account should be easily accessible, which in most cases means it should be saved in cash, not invested. Most likely, you won't be able to set that much money aside right away. The important thing is to get started—so, see if you can prioritize saving a even small amount, such as $20 a week. Of course, the ability to save will vary based on your financial situation and habits. Whether you're a saver or spender, like to play it safe or live on the edge, what’s important is that you’re prepared when the unexpected arises.
3. What should an emergency fund be used for?
Once you have an emergency fund, the hardest and most important part is to restrain yourself from using your savings on day-to-day wants and needs. The money put aside shouldn't be used for a new TV that’s on sale (not an emergency) or a new phone that was just released (also, not an emergency). Be strong! You’ll most likely find that once you have the savings, knowing you’re prepared is a great wellness booster and worth the peace of mind.
4. Emergency fund or insurance?
Although it may be tempting to consider various types of insurance as being available for emergencies, insurance claims can take a long time to process and will often not cover all of your needs. Having different types of insurance and an emergency fund can maximize your protection. Making sure you have both options in place will allow you to focus on your big picture goals and not sweat the smaller stuff.
Don’t let an emergency get in the way of your progress. Whether you’re making contributions to a bank savings account or leveraging a savings app, there’s no wrong way to get started saving.
To start your emergency savings fund, sign up for a free emergency savings account today. There are no account management or distribution fees, and you can withdraw at any time. The registration process makes it easy. Just follow the steps to create an account, so you’re ready when an emergency strikes.
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Important disclosures
1 Bankrate: "Bankrate’s 2023 annual emergency savings report" by Lane Gillespie, June 22, 2023 https://www.bankrate.com/banking/savings/emergency-savings-report/
Please note: Financial advice should be tailored to individual circumstances and the content of this article should not be viewed as recommendations. This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. The specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.
Advisory services offered through John Hancock Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02116. 888-955-5432.
Emergency Savings is a product offered by John Hancock Personal Financial Services LLC, an SEC investment adviser registered under the Investment Advisers Act of 1940. The assets in Emergency Savings accounts are swept into interest-bearing FDIC- insured deposit accounts as described below.
Apex (the account custodian) in its sole discretion may sweep the cash in a client’s Emergency Savings account into and out of interest-bearing FDIC-insured deposit accounts opened by Apex at participating banks (“Participating Banks”). Participating in the Emergency Savings program does not guarantee that any or all of the cash in a client’s account will be swept into a Participating Bank. FDIC insurance only applies to those assets in a client’s account that are swept into a Participating Bank. Assets in the client’s account that are not swept into accounts at Participating Banks are not insured by the FDIC and have no bank or government guarantees but are instead covered up to $250,000 by the Securities Investor Protection Corporation (“SIPC”) of which Apex is a member.
Interest paid on a client’s Emergency Savings account will vary over time and can change daily without notice to the client. Interest paid on a client’s Emergency Savings account may be lower or higher than interest paid on the bank account used by a client to fund the client’s Emergency Savings account or the interest paid on deposits at the Participating Banks or at other banks.
JHPFS does not charge any advisory or maintenance fees for an emergency savings account.
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