There’s and old saying that goes, “anything that can go wrong, will go wrong”.
No matter who you are or what financial situation — good or bad — you’re in, that saying can ring true to your life. That’s why it’s so important to make sure you’re financially secure, armed with a solid savings account balance that can help keep you stress-free (and debt-free) when unexpected expenses arise.
What types of expenses might pop up?
Obviously, there’s no telling what may come up, but the easiest way to think about these are expenses you haven’t budgeted for — even if your budget does contain an “emergency fund.” Some unexpected expenses that come to mind include hefty car repairs, medical expenses, and the loss of a job (which, unfortunately, many Americans have dealt with since the COVID-19 pandemic began).
Here are a few others that might not come to mind right away but could be budget-busters if you don’t keep them top of mind.
- Pet-related emergencies could bring forth thousands of dollars in bills as vets treat accidents, health issues, and behavioral problems (like dog bites.)
- Unexpected travel that allows you to get somewhere far away in a hurry. Whether you’re hurrying off in hopes of tending to a sick loved one or celebrating a newly arrived bundle of joy, just remember that tickets aren’t cheap when you book last-minute fares. (Don’t forget, you may need to rent a car or book a hotel, too.)
- Major home repairs can really break the bank if you aren’t prepared for them. Just look at these estimates: a new roof ($5,000-$10,000), an HVAC unit that won’t heat or cool ($7,000) or replacing an electrical panel ($1,100). Many experts recommend setting aside one percent of your home’s value for annual maintenance issues. This means that if your home is worth $200,000, you can plan to spend about $2,000 on repairs, upgrades, and improvements each year.
Now, let’s talk about how to cover those expenses. According to a 2020 survey, the average American’s emergency fund has gotten smaller as COVID-19 wreaked financial havoc across the country. In fact, just a quarter of Americans surveyed said they had enough money saved to cover six months of expenses, while 21 percent said they had no emergency savings.
Let’s take a step back. Imagine that you knew you’d be losing your job, your car, or your home three months from now. What would you do right now? Start saving, right?
Wait, I can budget for this?
Absolutely! Emergency savings should be an essential component of every budget. By simply saving a certain amount of money each month — even if it means one less time eating at a restaurant a week — you’ll be better protected when (not if) unexpected expenses pop up.
Peoples Bank offers My Money Manager that can help you plan a budget and track your savings goals. One of our favorite types of budgets is the zero-based budget, which simply means that every dollar you make is allocated to a specific budget category (like bills, food, savings, and even fun money).
But what if you already have a budget and are still worried about unexpected expenses? One way to approach an unsettled future is to build an emergency budget. This type of budget is much more restrictive than a “normal” budget — you’ll basically strip out everything down to the bare-bones necessities: food, clothing, and shelter. Hopefully, you’ll never need to flip the switch to your “backup” budget, but if you do, you’ll be glad you already have one prepared.
What’s the best savings account for me?
When it comes to unexpected expenses, we recommend opening a new, separate savings account — one in which your “emergency savings” don’t comingle with the cash you’ve earmarked for other expenditures (like vacations, a new car, or tuition payments).
- In many cases, you can open a new savings account with as little as $25, and earn competitive interest rates on the money that’s in your account. If you have a significant amount of money available to you, you could earn a higher rate of interest with a money market account.
- Look for an account that offers Online and Mobile Banking (which includes key features like online account transfers, Bill Pay, and Mobile Deposit). That way, you’ll be able to access your funds — or add to them — even when your bank is closed.
- Speaking of deposits, one of the most stress-free ways to save for unexpected expenses is to have a portion of any paychecks you have set for direct deposit sent straight into your emergency savings account. That will allow you to make emergency savings a “set-it-and-forget-it” transaction (while helping your savings grow).
Do I have any other options?
If you face unexpected or unplanned expenses and don’t have a fully-funded emergency savings account (or don’t have enough saved in it), there are a couple of options.
- First, we recommend talking directly to those you may soon owe money (such as a hospital, doctor’s office, auto mechanic, or home repairman) to see if they offer payment plans or similar arrangements.
- Next, we recommend exploring the resources you have available to you, like community-focused groups.
- One last option would be borrowing money from a financial provider. Of course, you’ll pay interest on a Home Equity Line of Credit (HELOC) or a secured personal loan, but either financial product could help you during a rough financial stretch depending on your eligibility.
We’re here to help
Since 1945, Peoples Bank has been committed to serving the personal and business banking needs of the communities we are honored to be a part of. Even then, we don’t know what tomorrow may bring — but we can help you be prepared for it.